Cryptocurrency, third party subpoenas, personal jurisdiction collide — Strobel v. Lesnick | Free human rights
Coinbase, Mt. Gox, and Gemini are well-known virtual money changers. It is through these exchanges that cryptocurrency users can execute transactions (for example, a Bitcoin transfer – whereby a transaction announcement occurs on the blockchain). As noted in a previous blog post, cryptocurrency transactions are pseudonymous, not anonymous. Additionally, cryptocurrency users do not have Fourth Amendment privacy interests in their records of virtual currency transactions. See Bare Bitcoins – No Fourth Amendment privacy in virtual currency records. However, in the civil context, do litigants have access to blockchain information to identify users? Last Friday, a federal district court questioned whether a civil litigant could seek permission to serve a third party subpoena on certain cryptocurrency exchange platforms.
Strobel v. Lesnick, et al.
In Strobel, the plaintiff, Neal Strobel, a resident of Washington state, invested approximately $ 58,000 in cryptocurrency through the worldofcryptomining.com (WOCM) website. The cryptocurrency has been transferred to a WOCM wallet. Mr Strobel invested after being recruited by Glen Lesnick who promised some big returns. Unfortunately, after Mr. Strobel’s investment, the cryptocurrency investment was moved from the WOCM wallet to two main wallets: one to a Gemini wallet and the second to a Coinbase wallet.
Following certain suspicious events, Mr. Strobel brought a civil action in the Northern District of California against Mr. Lesnick, Teresa Lesnick, Joseph Carr (who allegedly sold Mr. Strobel Forex trading software), as well as the Doe defendants. Subsequently, Mr. Strobel filed a subpoena request for Coinbase and Gemini to determine the owners of the wallets.
A court may allow an examination for discovery prior to the Rule 26 (f) conference for the convenience of parties and witnesses and in the interests of justice. In addition, some courts, such as those in the Ninth Circuit, generally consider whether a plaintiff has demonstrated “good cause” for an early discovery. A good cause can be established by evaluating certain factors:
In assessing whether a plaintiff establishes good cause for knowing the identity of a Doe defendant through discovery, courts consider whether the plaintiff: (1) identifies defendant Doe with sufficient precision for the court can determine that the defendant is a real person who can be sued in federal court, (2) recounts the steps taken to locate and identify the defendant, (3) demonstrates that the action can withstand a motion to dismiss, and ( 4) shows that the discovery is reasonably likely to lead to identifying information which will allow service of the pleadings.
According to the court, the relevant factor to the discovery request was to demonstrate that the complaint could withstand a motion to dismiss. However, the court found a personal jurisdictional issue. Based on a review of the parties and events involved, the plaintiff lives in Washington, the defendants live in Colorado and southern California, and the fraud likely took place in Washington. As a result, the district court dismissed the claim without prejudice, as the claimant was unable to establish that the Northern District of California was the correct district for the trial.
Third party subpoenas are not new to the world of civil litigation; However, they are relatively new when it comes to cryptocurrency issues. the Strobel This case highlights a basic principle of federal civil lawsuits: personal jurisdiction. Based on the facts of the case, the tribunal questioned whether it had personal jurisdiction over the parties and whether this was the appropriate venue. Although the court ultimately rejected the discovery request, this ruling is not problematic for cryptocurrency litigants for several reasons. First, plaintiffs who bring legal action in a more suitable location will not have as much difficulty in seeking a third party discovery (here, the court notes that this can be resolved by a transfer of location). Second, this case was about the early discovery (that is, the discovery before the rule 26 (f) conference), not the whole discovery. Finally, cryptocurrency issues are becoming more prevalent, and as a result, courts are becoming more and more familiar with the nuances of the collision between civil discovery and virtual currency.
 Strobel v. Lesnick, et al., No. 21-CV-01010-LB, 2021 WL 3604681, at * 1 (ND Cal. August 13, 2021).
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