Dellone v. Coinbase, Inc. et al

Filing 17

ORDER GRANTING IN PART 6 Motion for Order Approving Alternative Service signed by Magistrate Judge Helena M. Barch-Kuchta on 12/14/2023. (Xiong, J.)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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RYAN DELLONE,

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Case No. 1:23-cv-01408-ADA-HBK

Plaintiff,

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ORDER GRANTING IN PART MOTION
FOR ORDER APPROVING ALTERNATIVE
SERVICE1

v.

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COINBASE, INC., COINBASE GLOBAL,
INC. and 2.05698427 BITCOINS AND
OTHER VARIOUS DIGITAL
CURRENCIES,

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(Doc. No. 6)

Defendants.

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Pending before the Court is Plaintiff Ryan Dellone’s Motion for Order Permitting

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Alternative Service, filed on October 18, 2023. (Doc. No. 6, “Motion”). Plaintiff seeks an order

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approving Plaintiff’s efforts to serve Defendant 2.05698427 Bitcoins via electronic message, or

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alternatively, directing the United States Marshals Service to effectuate service upon Defendant

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2.05698427 Bitcoins via electronic message. (See id.). For the reasons set forth below, the Court

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grants Plaintiff’s Motion in part.
I.

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Plaintiff filed this action on September 26, 2023 against Defendants, 2.05698427 Bitcoins

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BACKGROUND

(the “Bitcoin Defendant”), Coinbase, Inc., Coinbase Global, Inc. (the “Coinbase Defendants”),

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This matter was referred to the undersigned pursuant to 28 U.S.C. § 636(b)(1)(B) and Local Rule 302
(E.D. Cal. 2022).

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and unidentified defendants presently referred to a as Does 1-50 in the Complaint. (See Doc. No.

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1). Plaintiff alleges that he is the owner of the 2.05 bitcoins currently located at the Bitcoin wallet

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with the public key address, bc1qjp79ak6fxm4h7j0tsrwqx2n2k4tcqqveqxrvgm (the “bc1

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Wallet”). (Id. at 5 ¶ 25).

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Plaintiff has unsuccessfully attempted to locate and identify the Bitcoin Defendant and

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discern its status, either as property and/or as a person. (Doc. No. 6 at 5). Efforts included

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Plaintiff’s counsel contacting the U.S. Attorney’s Office (USAO) in the District of New Jersey

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more than 20 times. (Doc. No. 6-1 at 3 ¶ 12). The USAO initially advised Plaintiff that his

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cryptocurrency property was seized as part of a criminal investigation; however, the USAO later

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indicated this was erroneous and that further information on a criminal case involving Plaintiff’s

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property remained subject to a grand jury investigation. (Id. at 2-3 ¶¶ 11-14). Plaintiff has also

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investigated whether the Coinbase Defendants control the Bitcoin wallets containing his stolen

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property. On October 10, 2023, counsel for the Coinbase Defendants advised they do not. (Id. at

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3 ¶ 17). Thus, despite diligent efforts, Plaintiff has been unable to identify an individual or

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business to whom service of the summons and complaint in this matter can be made to effectuate

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service on the Bitcoin Defendant.

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Plaintiff did undertake to personally serve the Bitcoin Defendant by sending an electronic

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copy of the summons and complaint in this case to the bc1 Wallet using a Bitcoin code known as

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OP_RETURN that accompanies a Bitcoin transaction, akin to the memo line of a check. (Doc.

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No. 6 at 5-6). Specifically, on October 14, 2023, Plaintiff sent two separate Bitcoin transactions,

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containing an OP_RETURN message, to the bc1 Wallet. (Id. at 6). The first transaction includes

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the message, “LAWSUIT https://t.ly/123cv01408_service”; the second transaction includes the

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message, “SERVICE - SUMMONS, COMPLAINT U.S. Dist. E.D. Cal. LINK:

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t.ly/123cv01408_service.” (Id.). Both communications included a message with a short-form

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URL link to a webpage where electronic versions of the summons and complaint are posted in a

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publicly accessible form. (Id.).

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In order to comply with Federal Rule of Civil Procedure 4(m), Plaintiff filed the instant
Motion on October 18, 2023, asking the Court to either find Plaintiff’s previous method of service
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of the summons and complaint acceptable under Rule 4(e), or to direct the U.S. Marshals Service

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(“USMS”) or another specially appointed person to serve the Bitcoin Defendant in a manner

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specified in the Motion. (See generally id.).

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II.

DISCUSSION

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Legal Standard Governing Motions for Alternative Service Under Rule 4(e)

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Rule 4(e)(1) provides that service upon an individual can be made by “following state law

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for serving a summons in an action brought in courts of general jurisdiction in the state where the

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district court is located or where service is made,” which in this case is California. California law

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allows service to be made “as prescribed by the law of the place where the person is served.” Cal.

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Code Civ. P. § 413.10. California expressly permits service “by electronic means” provided that

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certain requirements are met. See Cal. Code Civ. P. § 1010.6; see also Commodity Futures

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Trading Comm’n v. Ooki DAO, 2022 WL 17822445, at *10 (N.D. Cal. Dec. 20, 2022)

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Section 413.30 provides, “Where no provision is made in this chapter or other law for the

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service of summons, the court in which the action is pending may direct that summons be served

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in a manner which is reasonably calculated to give actual notice to the party to be served and that

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proof of such service be made as prescribed by the court.”

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Several federal district courts in California have approved various forms of electronic

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service as reasonably calculated to give actual notice to the party to be served. See, e.g., Nowak

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v. XAPO, Inc., 2020 WL 5877576, at *2 (N.D. Cal. Oct. 2, 2020) (permitting service of process

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via Facebook and Twitter); Beqa Lagoon Support Services v. Hasselman, 2020 WL 6271032

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(S.D.Cal., Oct. 26, 2020) (finding service by email may satisfy Rule 413.30); St. Francis Assisi v.

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Kuwait Fin. House, 2016 WL 5725002, at *2 (N.D. Cal. Sep. 30, 2016) (discussing decision to

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grant “service by email, Facebook, and LinkedIn because notice through these accounts was

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reasonably calculated to notify the defendant of the pendency of the action and was not prohibited

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by international agreement”); UBS Fin. Servs. v. Berger, 2014 WL 12643321, at *2 (N.D. Cal.

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Apr. 24, 2014) (recounting court’s decision to authorize service via defendant’s “gmail address

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and through LinkedIn’s ‘InMail’ feature”); Tatung Co. v. Shu Tze Hsu, 2015 WL 11089492, at *2

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(C.D. Cal. May 18, 2015) (“Courts routinely authorize email service under Rule 4(f)(3)”) (citing
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cases). Courts around the U.S. have specifically authorized service by electronic message

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combined with posting a copy of the summons and complaint on a public webpage. See, e.g.,

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Transam. Corp. v. TransAm. Multiservs. Inc. et al., (S.D. Fla. Sept. 18, 2018) [Dkt. No. 17]

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(permitting plaintiff to serve defendants at their email address and “via publication by posting a

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copy of the Complaint and Summons on the Internet website appearing at [a given] URL”);

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Chanel, Inc. v. Partnerships & Unincorporated Ass’ns, 2012 WL 12894807, at *1-2 (S.D. Tex.

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Oct. 10, 2012) (finding service by email and website publication were reasonably calculated to

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give international defendants notice of the lawsuit).

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The method of service utilized by Plaintiff here, while relatively novel, has been approved

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by a state court. In LCX AG v. 1.27M U.S. Dollar Coin, Index No. 15644/2022, Doc. No. 112

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(N.Y. Sup. Ct. Aug. 22, 2022), the New York state trial court found alternative service of a

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summons and complaint effective under New York state law when transmitted to Doe defendants

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via cryptocurrency token. The court found the method of service reasonably calculated to provide

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actual notice to the Doe defendants because defendants regularly used the Blockchain address to

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which the tokens were sent and had recently done so. (Id.). Further, the account to which the

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tokens were sent contained a significant sum of money ($1.3 million), thus the court inferred the

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defendants were likely to access the account in the future. (Id.). Finally, the plaintiff had no

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alternative means of contacting these unknown defendants. (Id.).

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The method approved in LCX AG is largely the same as used by Plaintiff in this case. And

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for similar reasons, the Court here finds that Plaintiff’s service of the summons and complaint to

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the bc1 wallet is reasonably calculated to provide actual notice to the Bitcoin Defendant. The bc1

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wallet contains 2.05 bitcoins, currently valued at approximately $74,000.2 (See Doc. No. 6 at 7-

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8). Thus, the Bitcoin Defendant or an authorized person is likely to return to access the assets in

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the account in the future. When they do so, the Bitcoin Defendant will find Plaintiff’s message,

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including the link to the service documents. Further, given Plaintiff’s unsuccessful efforts to find

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another means of contacting the Bitcoin Defendant, it appears that sending a message to the bc1

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wallet is the only method likely to reach the Bitcoin Defendant. The Court finds that the method

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See https://www.coinbase.com/price/bitcoin (last visited November 30, 2023).

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of service Plaintiff employed to serve the Bitcoin Defendant meets the requirements of Cal. Code

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Civ. P. §§ 413.10 and 1010.6 because it is reasonably calculated to provide actual notice to the

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Bitcoin Defendant, who cannot otherwise be served with the summons and complaint.

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In the alternative, Plaintiff asks the Court to direct the USMS to effectuate service by

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opening and funding a Bitcoin account and sending a series of messages to the bc1 wallet,

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essentially replicating the efforts already undertaken by Plaintiff. (See Doc. No. 6 at 8-11).

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Plaintiff points to the risks that malicious or spam OP_RETURN messages may pose to digital

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assets as a reason to standardize this process and order USMS or another Court-appointed

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individual to manage service. (Id. at 11). Plaintiff asserts doing so contributes to judicial

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economy. (Id. at 8). The Court fails to see how directing the USMS to undertake essentially the

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same steps that Plaintiff has already undertaken would be more efficient than simply approving

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Plaintiff’s prior efforts to effectuate service. Moreover, doing so does not appear to involve the

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risks posed by malicious OP_RETURN communications. Here, unlike in the scenarios noted by

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Plaintiff, the recipient of the OP_RETURN communications—not the messenger—is the

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purported malicious actor. Finally, while Plaintiff notes that the USMS already manages a large

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volume of seized cryptocurrency assets, Plaintiff cites to no precedent authorizing the USMS to

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effectuate service in this way for a civil case. (Id. at 12). Because the Court finds the method

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utilized by Plaintiff on October 14, 2023 satisfies Rule 4, the Court need not direct duplicate

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service by the USMS on the Bitcoin Defendant.

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Accordingly, it is hereby ORDERED:

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Plaintiff’s Motion for Order Permitting Alternative Service (Doc. No. 6) is GRANTED to

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the extent set forth above.
Dated:

December 14, 2023
HELENA M. BARCH-KUCHTA
UNITED STATES MAGISTRATE JUDGE

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