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Greene v. Mizuho Bank, LTD

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

June 7, 2018

GREGORY GREENE 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.

         This putative class action brought by Gregory Greene and Anthony Motto seeks to hold Mizuho Bank, Ltd. and Mark Karpeles liable for financial losses arising from the demise of the Mt. Gox Bitcoin exchange. Doc. 245. Earlier in the litigation, the court denied Mizuho's motion under Federal Rule of Civil Procedure 12(b)(2) to dismiss the claims against it for lack of personal jurisdiction. Docs. 199-200 (reported at 169 F.Supp.3d 855 (N.D. Ill. 2016)). The court then granted in part Mizuho's Rule 12(b)(6) motion, dismissing Greene's tortious interference claim and the accounting claim brought by all then-named Plaintiffs. Docs. 229-230 (reported at 206 F.Supp.3d 1362 (N.D. Ill. 2016)). After the Supreme Court issued Bristol-Myers Squibb Co. v. Superior Court of California, 137 S.Ct. 1773 (2017), and on Mizuho's motion, the court dismissed all claims brought by the two non-Illinois plaintiffs, Joseph Lack and Gregory Pearce, for lack of personal jurisdiction. Docs. 311-312 (reported at 289 F.Supp.3d 870 (N.D. Ill. 2017)). Lack and Pearce have since filed suit against Mizuho and Karpeles on in their respective home districts. See Lack v. Mizuho Bank, Ltd., No. 2:18-cv-617 (C.D. Cal. filed Jan. 24, 2018); Pearce v. Mizuho Bank, Ltd., No. 2:18-cv-306 (E.D. Pa. filed Jan. 24, 2018).

         With the Rule 12(b) dust now settled, the operative complaint brings three counts against Mizuho, all on behalf of Motto and the putative Deposit Subclass: tortious interference with contract, Doc. 245 at ¶¶ 122-130 (Count IV); unjust enrichment, id. at ¶¶ 131-138 (Count V); and fraudulent concealment, id. at ¶¶ 139-150 (Count VI). The Deposit Subclass is defined as those members of the Mt. Gox class-itself defined as “[a]ll persons in the United States who had bitcoins or money stored with Mt. Gox on February 24, 2014”-“who deposited money into their Mt. Gox account through Mizuho Bank after the date [when] Mizuho Bank stopped processing withdrawals.” Id. at ¶ 89. The operative complaint's remaining counts, brought on behalf of Greene, Motto, and the Mt. Gox Class, name only Karpeles as defendant and need not be discussed for present purposes. Id. at ¶¶ 95-121.

         Motto now moves under Rule 23 to certify the Deposit Subclass. Doc. 294. Because Motto fails on two separate grounds to show that he satisfies the typicality and adequacy requirements of Rules 23(a)(3) and (a)(4), the motion is denied.

         Background

         “Unlike a motion under Federal Rule of Civil Procedure 12(b)(6), a motion to certify a class under Rule 23(c) is not one for which the court may simply assume the truth of the matters as asserted by the plaintiff. Instead, if there are material factual disputes, the court must receive evidence and resolve the disputes before deciding whether to certify the class.” Priddy v. Health Care Serv. Corp., 870 F.3d 657, 660 (7th Cir. 2017) (citation, alterations, and internal quotation marks omitted). Still, “[i]n conducting this analysis, the court should not turn the class certification proceedings into a dress rehearsal for the trial on the merits.” Messner v. Northshore Univ. HealthSys., 669 F.3d 802, 811 (7th Cir. 2012). “The plaintiff bears the burden of proving by a preponderance of the evidence all necessary prerequisites to the class action.” Priddy, 870 F.3d at 660.

         A. Mt. Gox's Relationship with Mizuho

         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. Founded in 2009, Mt. Gox was a bitcoin exchange based in Tokyo, Japan; it declared bankruptcy and ceased operations in February 2014. Doc. 246 at pp. 4-5, ¶ 13, p. 12, ¶ 41.

         Mizuho is a large Japanese financial institution, with headquarters in Tokyo, Japan. Id. at p. 3, ¶ 9. Beginning in September 2012, Mizuho received and processed deposits and withdrawals of fiat currency for United States-based Mt. Gox customers. Id. at pp. 7-8, ¶¶ 24-25; Doc. 296 at 14; Doc. 338 at 9; Doc. 339-12. Customers who wished to purchase bitcoins on the exchange using fiat currency would initiate an “inbound” wire transfer to Mizuho to be credited to Mt. Gox's account, while customers' requests to cash out into fiat currency their bitcoin positions would cause an “outbound” wire transfer to be initiated from Mt. Gox's Mizuho account. Doc. 296-2 at 24-28. Mizuho did not play an exclusive role in this regard, as Mt. Gox relied at different points in time on other financial institutions and payment processors, including Japan Post Bank, Dwolla, and OK Pay, to facilitate fiat currency deposits and withdrawals. Doc. 296 at 14; Doc. 338 at 9.

         In March and April 2013, Japanese regulators and executives of several large multinational banks contacted Mizuho to express concern that Mt. Gox was being used to launder funds connected with criminal activity. Doc. 296 at 15; Doc. 338 at 9-10; Doc. 296-2 at 37, 39-44. The next month, the U.S. Department of Homeland Security seized assets owned by Mt. Gox's American subsidiary for allegedly violating 18 U.S.C. § 1960, which prohibits operating an unlicensed money transmitting business. Doc. 296 at 14-15; Doc. 338 at 10; Doc. 327-6.

         In the wake of these events, Mizuho put pressure on Mt. Gox to find another partner bank. Doc. 296 at 14; Doc. 338 at 10; Doc. 296-2 at 58. By late June 2013, Mizuho had stopped processing all international outbound wire transfer requests for Mt. Gox customers. Doc. 296 at 15; Doc. 338 at 10; Doc. 295-5 at 3; Doc. 296-2 at 72, 82; 296-5 at 2; Doc. 339-3 at 13. Neither Mizuho nor Mt. Gox announced publicly that Mizuho had stopped processing those outbound wire transfer requests. Doc. 296 at 17-18; Doc. 338 at 12-13; Doc. 295-12; Doc. 296-2 at 95-96; Doc. 296-17 at 2. Mizuho, however, continued to accept and receive international inbound wire transfers from Mt. Gox customers until Mt. Gox shut down in February 2014. Doc. 338 at 11; Doc. 339-3 at 13. From June 2013 until February 2014, when Mt. Gox ceased operations and declared bankruptcy, Mt. Gox account holders in the United States could withdraw fiat currency using other intermediaries. Doc. 296 at 14; Doc. 338 at 11; Doc. 295-5 at 3.

         B. Anthony Motto

         Motto opened an account with Mt. Gox in mid-January 2014. Doc. 339-20 at 11. Approximately a month later, and days before Mt. Gox ceased operations, Motto wired $1, 000 in fiat currency from a JPMorgan Chase Bank account he controlled-owned by his company, Highline Technologies-to Mt. Gox's account at Mizuho. Doc. 339-20 at 13; Doc. 339-21; Doc. 339-22 at 7. At the time he wired the money, Motto was aware of difficulties, including delays, in Mt. Gox's processing of withdrawal requests. Doc. 339-20 at 30-31. Motto testified, however, that he was not “overly concerned” about those problems. Id. at 32-33. As Motto explained, had he decided to make a withdrawal, he “would have withdrawn bitcoin” rather than trying to “turn[]” his investment “back into U.S. dollars”; a withdrawal of bitcoin, as opposed to a withdrawal of fiat currency, would not have required services of a bank like Mizuho. Id. at 33. When asked whether his decision to invest in bitcoin on Mt. Gox would have been “impacted” by learning that Mizuho was “no longer processing … fiat currency withdrawal requests, ” Motto testified that he “would have worked another way to get funds into the Mt. Gox exchange.” Ibid.

         Pursuant to a policy it adopted in late February 2014 after Mt. Gox declared bankruptcy, Doc. 339-22 at pp. 2-3, ¶¶ 3-4, Mizuho contacted Chase on March 7, 2014 using the “SWIFT” interbank messaging system to ask if Motto (as Highline Technologies) “would request this transaction to be cancelled or not, ” id. at 10. The message noted that, “according to news reports, the beneficiary Mt. Gox which is bit coin exchange in Japan, is in the situation of stop operations.” Ibid. Mizuho promised that “[i]n the case of cancellation, ” it would “return [Motto's] fund[s] less our charges.” Ibid. Chase responded on March 10, indicating that it would contact Motto “for additional details” and ...


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