Babiak v. Mizuho Bank, Ltd.
Filing
22
MEMORANDUM OPINION. Signed by District Judge Liam O'Grady on 9/17/2018. (dest, )
m THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Alexandria Division
SCOTT BABIAK,individually and on behalf
of all others similarly situated,
Plaintiff,
Case No. l:18-cv-352
V.
MIZUHO BANK,LTD.,
Defendant.
MEMORANDUM OPINION
Plaintiff, Scott Babiak, filed this putative class action on March 23,2018. In his
Complaint, Plaintiff alleges one count oftortious interference with contract against Defendant,
Mizuho Bank. Dkt. No. 1.
This matter comes before the Court on Defendant's Motion to Dismiss for Lack of
Jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2) and Defendant's Motion to
Dismiss for Failure to State a Claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt.
No. 9. For the following reasons, the Court grants Defendant's Motion to Dismiss for Lack of
Jurisdiction. Because the Court lacks jurisdiction it declines to consider the Motion to Dismiss
for Failure to State a Claim.
I. Background
This case arises out ofthe actions that precipitated the collapse of Mt. Gox,an entity
which at one point claimed to be "the world's most established bitcoin exchange." Dkt. No. 1 f
8. Mt. Gox was based in Japan but had customers from all over the world. To participate in the
exchange, users would first create a Mt. Gox account. Id. ^ 9. Then,to begin trading on the
exchange, users could either deposit bitcoins they already owned by transferring them directly
into their Mt. Gox accounts or deposit cash into their Mt. Gox accounts by wiring money to
Defendant, Mizuho Bank, a Japanese financial institution. M ^ 11. These wire transfers would
designate Mt. Gox as the beneficiary. Defendant as beneficiary's bank, and list the user's Mt.
Gox account number. M ^ 18. Defendant would then transfer the money into the bank account
Mt. Gox held with Defendant with a designation ofthe user's Mt. Gox account number.Id.\\\.
Finally, Mt. Gox would then transfer the money into the user's Mt. Gox account.
When a user wished to withdraw money from the exchange, he would submit a request
through his Mt. Gox account. Id. f 19. Mt. Gox would then make a request to Defendant for
processing. Id. The request would include the user's banking details and the amount to be
transferred. Id. Defendant would then transfer the requested amount to the user's bank. Id.
In 2013, Defendant's relationship with Mt. Gox began to sour. Reports surfaced that U.S.
authorities were investigating Mt. Gox for money laxmdering and so - wishing to avoid
regulatory scrutiny and reputational harm - Defendant asked Mt. Gox's CEO,Mark Kaipeles, to
close Mt. Gox's account with Defendant. Id.
21-23. Karpeles refused. Id. T[ 23. Defendant
responded by implementing policies that would make it difficult for Mt. Gox to do business with
Defendant. Id. f 23. Most notably, in June 2013, Defendant stopped processing international wire
withdrawals for Mt. Gox.Id. ^ 24.
Defendant's change in policy had near immediate effects on Mt. Gox's users. In June
2013, users began to post online about delays in withdrawing money from their Mt. Gox
accounts.Id. ^ 24. Neither Defendant nor Karpeles disclosed the reason for the delays and
Defendant continued to accept wire transfers from Mt. Gox users. Id. TI26. The backlog of
withdrawal requests continued until February 7,2014, when Karpeles froze users' ability to
withdraw any bitcoins from Mt. Gox.Id. ^ 32. On February 24, 2014, Mt. Gox's website went
dark. Id. 32. On February 28,2014, Mt. Gox filed for bankruptcy in Japan. Id. f 35.
Plaintiff, Scott Babiak, is a Virginia citizen who created an account with Mt. Gox in or
around May 2013. M
3,41. After opening his account. Plaintifftransferred his previously
owned bitcoins into it. On August 31, 2013, Plaintiff submitted a withdrawal request to Mt. Gox
for $2,500. Id. T[ 44. Plaintiff designated the funds be deposited in his U.S. bank account. Id. 44.
Plaintiff received an email from Mt. Gox confirming the request. Id. After not receiving any
funds Plaintiff submitted two more withdrawal requests, one on September 1, 2013, and the other
on September 2,2013.Id. 143. Again Plaintiff received confirmation emails but no funds. Id. A
month later, on October 1, 2013, Plaintiff received a message from Mt. Gox customer support
notifying him that all international withdrawals were delayed. Id. ^ 46. Plaintiff received no other
communications from Mt. Gox before the website went dark in February 2014 and never
received the $2,500 he requested.
Plaintiff alleges Defendant's decision to halt international withdrawals amounts to
tortious interference v^th contract. Plaintiff seeks to certify a class of similarly situated
individuals to pursue this action.
11. Legal Standard
It is plaintiff's burden to demonstrate personal jurisdiction at every stage after a
defendant raises a challenge under Rule 12(b)(2). Grayson v. Anderson, 816 F. 3d 262,267(4th
Cir. 2016). When the court is considering a personal jurisdiction challenge "by reviewing only
the parties' motion papers, affidavits attached to the motion, supporting legal memoranda, and
the allegations in the complaint" the plaintiff need only make a prima facie showing of personal
jurisdiction. Id. at 268. In examining the 12(b)(2) challenge the court must consider all
allegations and facts in the light most favorable to the plaintiff. Id.
in. Analysis
A federal court has personal jurisdiction over a non-resident defendant if(1)the forum
state's long-arm statute authorizes personal jurisdiction over the non-resident defendant, and (2)
personal jurisdiction over the non-resident defendant comports with the due process clause. In
Virginia,"the statutory inquiry merges with the constitutional inquiry" as Virginia's long-arm
statute authorizes personal jurisdiction "to the extent permissible under the constitution."
ConsultingEng'rs Corp. v. Geometric Ltd., 561 F. 3d 273,277(4th Cir. 2009).
The constitutional analysis for personal jurisdiction requires the defendant to "have
sufficient'minimum contacts' with the forum state such that 'the maintenance ofthe suit does
not offend traditional notions offair play and substantial justice." Id. (quoting Int 7 Shoe Co. v.
Washington, 326 U.S. 310, 316(1945)). These minimum contacts must have been enough so
"that the defendant's conduct and connection with the forum State are such that he should
reasonably anticipate being haled into court there." World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286,297(1980). The contacts cannot simply be "random,fortuitous, or attenuated,"
Burger King Corp. v. Rudzewicz, 471 U.S. 462,477(1985)(frrst quoting Keeton v. Hustler
Magazine, Inc., 465 U.S. 770,774(1984), then quoting World-Wide Volkswagen Corp.,444 U.S.
at 299), and cannot be the "unilateral activity of another party or a third person." Id.(quoting
HelicopterOS Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408,417(1984)).
The Fourth Circuit has described the due process inquiry as a three part test in which
courts consider:"(1)the extent to which the defendant 'purposefully avail[ed]' itself ofthe
privilege of conducting activities in the State;(2) whether the plaintiffs' claims arise out ofthose
activities directed at the State; and (3) whether the exercise of personal jurisdiction would be
constitutionally 'reasonable.'"
Scijw, Inc. v. DigitalServ. Consultants, Inc., 293 F.3d 707,
712(4th Cir. 2002).
A. Mizuho did not purposefully avail itselfofthe privilege ofconducting activities in
Virginia.
The Fourth Circuit has articulated a nonexclusive list offactors that are helpful in
determining whether a non-resident business has availed itself ofthe privilege ofconducting
activities in the forum state. In this analysis the Fourth Circuit considers whether the defendant
business "maintains offices or agents in the forum state;""owns property in the forum state;"
"reached into the forum state to solicit or initiate business;" "deliberately engaged in significant
or long-term business activities in the forum state;" or 'made in-person contact with the resident
ofthe forum in the forum state regarding the business relationship." Perdue Foods LLC v. BRF
S.A., 814 F.3d 185, 189(4th Cir. 2016)(quoting ConsultingEng'rs Corp.,561 F. 3d at 278). The
Fourth Circuit also evaluates "whether the parties contractually agreed that the law ofthe forum
state would govem disputes;""whether the performance of contractual duties was to occur
within the forum;" and "the nature, quality and extent ofthe parties' communications about the
business being transacted." Id.
Here, Defendant has no offices or agents in Virginia. It does not own property in
Virginia. It did not reach into Virginia to solicit or initiate business. If anything, Virginians
reached out to Defendant to solicit or initiate business by wiring money firom their U.S. banks to
Defendant. Defendant did not deliberately engage in significant or long-term business activities
in Virginia. Instead, all of Defendant's actions took place in Japan. Defendant never made in
person contact with a Virginian regarding Mt. Gox. Defendant never entered into a contract with
a Virginian regarding this matter, much less a contract that specified that contractual duties were
to be performed in Virginia.
Finally, the extent ofthe Defendant's contacts with any Virginians were slight. At most, a
Virginian would wire money to Defendant. After that, all interactions were between Defendant
and Mt. Gox. When a user wished to withdraw money, he did not contact Defendant. Instead, he
would make a request to Mt. Gox and then Mt. Gox would make a request for Defendant to wire
funds to the user. None ofthe factors articulated by the Fourth Circuit cut toward this Court
exercising personal jurisdiction in this case.
To further understand the personaljurisdiction inquiry it is instructive to examine this
case's sister cases: one from the Northern District of Illinois, Greene v. Mizuho Bank, Ltd., 169
F. Supp. 3d 855(N.D. 111. 2016), and one from the Eastern District ofPennsylvania,Pearce v.
Mizuho Bank, Ltd., 2018 WL 4094812(E.D. Pa. Aug. 27, 2018). Both cases arise out ofthe same
facts and make similar allegations against the same Defendant as the present case.
Greene involved two plaintiffs: Greene and Lack. Greene was an Illinois resident who
traded and sold bitcoins on the Mt. Gox exchange. Greene, 169 F. Supp. at 858. Lack was a
California resident who wired $40,000 to Defendant for Defendant to deposit in Mt. Gox's bank
account(and which would then be transferred to Lack's Mt. Gox account). Id. at 859.
The Northern District of Illinois held Defendant's interactions with Lack were enough to
establish minimiim contacts. This is because Defendant became aware of Lack's California
address when it received the wire transfer, it accepted the wire transfer, and it earned a service
fee offthe wire transfer. Id. at 861-62. Nonetheless, the court dismissed Lack's complaint
because while it would satisfy personal jurisdiction over Defendant in Lack's home state of
California, it did not satisfy personal jurisdiction over Defendant in Illinois. Id.
The Northern District of Illinois also dismissed Greene's claim, citing lack of personal
jurisdiction. The court emphasized that there were no allegations that Greene sent wire transfers
to Defendant and no allegations that Defendant collected any transaction fees off Greene. Id. at
865. Further, the court stated:
Mizuho had no transactional contacts with Greene ofthe type that it had with Lack; in
fact it had no transactional contacts with Greene at all. The alleged harm to Greene is
Mizuho's only contact with Illinois, and that harm is insufficient to establish personal
jurisdiction, as "mere injury to a forum resident is not a sufficient connection to the
forum."
Id. (quoting Walden v. Fiore, 571 U.S. 277,290(2014)).
The Eastern District ofPennsylvania held it had no personal jurisdiction over Defendant
in a case with a plaintiff in a nearly identical factual scenario as Plaintiff in this case. In Pearce,
the plaintiff, Pearce, created a Mt. Gox accoimt and transferred bitcoins into it. Pearce,2018 WL
4094812 at *2. Pearce submitted a withdrawal account to Mt. Gox in the amount of $5,900. Id.
Pearce received a confirmation email from Mt. Gox.Id. Later, never having received the
requested funds, Pearce received an email from Mt. Gox customer support informing him that all
intemational withdrawals were delayed. Id. Pearce attempted to cancel his withdrawal request,
convert the $5,900 back into bitcoin, and withdraw his bitcoin balance from Mt. Gox.Id. This
was unsuccessful and then Mt. Gox went dark. Id.
In its reasoning, the Eastem District ofPennsylvania emphasized that Defendant did not
deliberately target the forum state. Pearce - as does Plaintiff in this case - argued that Defendant
decided to tortuously interfere with Pearce's contract with Mt. Gox precisely because Pearce was
a resident ofPennsylvania. Id. at *5. Under Pearce's theory. Defendant wished to put pressure on
Mt. Gox to close its account and knew the best way to do that would be to threaten Mt. Gox's
business with American users. Pearce claimed that his Pennsylvania citizenship was critical to
Defendant's actions because it was a proxy for his American citizenship. Therefore, Pearce
argued, Defendant purposely availed itself ofthe forum state because interfering with American
contracts was its ultimate goal.
The court was not persuaded by this argument. Importantly, the court emphasized
Defendant "never engaged in any transactional contact with Pearce." Id. Further,"the alleged act
at the heart ofPearce's claim is a negative action. By not fulfilling the withdrawal request,
Mizuho failed to direct any activity at Pennsylvania."Id. For these reasons the court held it
lacked personal jurisdiction.
Significantly, here Plaintiff does not allege any facts that make his situation more similar
to Lack's,in which the court found there could be personal jurisdiction if the case was brought in
the proper venue. Unlike Lack, Plaintiff did not wire money to Defendant, thereby alerting
Defendant to his existence and citizenship. Instead, Plaintiff, like Pearce and Greene, deposited
previously purchased bitcoins directly into his Mt. Gox account. When Plaintiff wished to
withdraw funds, Mt. Gox requested the v^thdrawal from Defendant on Plaintiff's behalf. Like
Pearce, Plaintiff never had any contacts or transactions directly with Defendant. Although
Plaintiff here attempted three withdrawal requests while Pearce only attempted one,the issue in
Pearce's personal jurisdiction analysis was not the frequency of withdrawal requests. Instead,the
issue was that the action at the heart of the personal jurisdiction inquiry was inaction. This does
not change with the number oftimes Defendant declined to act.
Therefore here, as has been found in other districts, there is no personal jurisdiction.
Defendant did not purposely avail itself ofthe privilege ofconducting activities in Virginia. In
fact. Defendant conducted no activities in Virginia at all. "[I]t is the defendant, not the plaintiff
or third parties, who must create contacts with the forum State." Walden, 571 U.S. at 291. Here,
Defendant did not create contacts with Virginia. Any contacts with Virginia that arguably exist
are ofPlaintiffs making. Defendant's inaction is insufficient to establish personal jurisdiction.
B. Because There Was No Purposeful Availment, the Court Need Not Consider Whether
Plaintiff's Claims Arise out ofThose Activities Directed at the State or Whether the
Exercise ofPersonal Jurisdiction Would Be Constitutionally Reasonable.
The Fourth Circuit has clearly stated,"[i]f, and only if, we find that the plaintiff has
satisfied this first prong ofthe test for specific jurisdiction need we move on to a consideration of
prongs two and three." ConsultingEng'rs Corp., 561 F.3d at 278. As detailed above, here
Plaintiffs claim fails on the first prong. There is no need for the Court to consider prongs two
and three.
m.Conclusion
For the reasons stated and for good cause shown. Defendant's Motion to Dismiss for
Lack of Jurisdiction is granted. Because the Court lacks jurisdiction it declines to consider
Defendant's Motion to Dismiss for Failure to State a Claim. Plaintiffs claim is dismissed with
prejudice. A separate Order shall issue.
^
September \ 1,2018
Alexandria, Virginia
Liam 0"C^dy
United St^s District Judge
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