Opinion
C23-1324JLR
12-06-2023
STEPHEN JOHN CLAYTON, et al., Plaintiffs, v. DOES, Defendants.
ORDER
JAMES L. ROBART UNITED STATES DISTRICT JUDGE
I. INTRODUCTION
Before the court is pro se Plaintiffs Stephen John Clayton and Christopher Stephen Clayton's (“Plaintiffs”) ex parte “motion for discovery to subpoena third parties without initial disclosure.” (Mot. (Dkt. # 12).) The court has considered the motion, the relevant portions of the record, and the governing law. Being fully advised, the court DENIES Plaintiffs' motion without prejudice to file a subsequent ex parte motion for leave to serve third-party subpoenas prior to a Rule 26(f) conference.
II. BACKGROUND
Plaintiffs want to know who “cashed out” Stephen Clayton's cryptocurrency reserves on various crypto exchange platforms. (Am. Compl. (Dkt. # 10) at 2.) Between May 10, 2022 and August 22, 2022, Stephen allegedly deposited $61,809.40 worth of Ethereum cryptocurrency into an account using the website vip.biitflyeir.com (“Book Exchange”). (Id. at 1-2.) When he later sought to withdraw his investment, Stephen was only able to retrieve $2,275 worth of United States Dollar Tether, another cryptocurrency. (Id. at 2.) Plaintiffs later discovered that the remaining principal had been liquidated on three crypto exchanges: (1) Binance 14, operated by Binance Holdings Limited (“Binance”) in the Cayman Islands; (2) CEX.IO, operated by CEX.IO Corp. (“CEX.IO”) in Naperville, Illinois; and (3) OKX 7, operated by Aux Cayes FinTech Co. Ltd. (“OKX”) in the Republic of Seychelles. (Id. at 2-4; Mot. at 2-3.) Plaintiffs then worked with “professional cryptocurrency tracers” to verify that Binance, CEX.IO, and OKX are in possession of “relevant personally identifiable information of unknown Defendants” (the “Doe Defendants”). (Am. Compl. at 4; see also Mot. at 3.) In other words, Plaintiffs believe Binance, CEX.IO, and OKX can tell them who stole Stephen's crypto.
The court uses Plaintiffs' first names for clarity.
Accordingly, Plaintiffs filed the present motion seeking “approval to issue subpoenas” to Binance, CEX.IO, and OKX demanding that they “[p]rovide the names, physical addresses, email addresses, redacted bank account numbers and banking institutions on file for the account holders associated with four distinct transaction ID numbers where [Stephen's] value of cryptocurrency was cashed out” in order “to identify the unknown Defendants.” (Mot. at 4, 11, 15.)
III. ANALYSIS
This court has a “duty to construe pro se motions liberally.” United States v. Qazi, 975 F.3d 989, 993 (9th Cir. 2020). Accordingly, the court construes Plaintiffs' motion as one requesting leave to serve third-party subpoenas prior to a Rule 26(f) conference. See Malibu Media, LLC v. Doe, 319 F.R.D. 299, 301 (E.D. Cal. 2016) (ruling on such a motion); Strike 3 Holdings, LLC v. Doe, No. C17-1733MJP, 2017 U.S. Dist. LEXIS 204354, at *1 (W.D. Wash. Dec. 12, 2017) (same). The court first sets forth the relevant legal standard before turning to the merits of Plaintiffs' motion.
A. Legal Standard
A party may seek production of documents from third parties pursuant to Federal Rule of Civil Procedure 45. See Fed.R.Civ.P. 45(a)(1). “The scope of third-party discovery is governed by Rule 26 and includes ‘any nonprivileged matter that is relevant to a party's claim or defense and proportional to the needs of the case.'” Bel Power Sols., Inc. v. Monolithic Power Sys., Inc., No. C23-0008JCC, 2023 WL 2401926, at *1 (W.D. Wash. Mar. 8, 2023) (quoting Fed.R.Civ.P. 26(b)(1)). Importantly, “Rule 45 does not allow for interrogatories to third parties,” including “interrogatories disguised as a request for production.” Id. (first citing Turner v. Ralkey, No. C20-5472BHS-DWC, 2021 WL 135855, at *3 (W.D. Wash. Jan. 13, 2021); then citing Duong v. Groundhog Enters., Inc., No. 2:19-cv-01333-DMG-MAA, 2020 WL 2041939, at *8 (C.D. Cal. Feb. 28, 2020)).
“As a general rule, discovery proceedings take place only after the defendant has been served.” MG Premium Ltd. v. Does 1-20, No. C20-5134BHS, 2020 WL 1675741, at *1 (W.D. Wash. Apr. 6, 2020) (quoting Columbia Ins. Co. v. Seescandy.com, 185 F.R.D. 573, 577 (N.D. Cal. 1999)). Courts have made exceptions to this rule “in rare cases” such as those in which “the tortious activity occurred entirely online,” allowing “limited discovery to ensue after filing of the complaint to permit the plaintiff to learn the identifying facts necessary to permit service on the defendant.” Id. (quoting Columbia Ins. Co., 185 F.R.D. at 577).
Requests for pre-service discovery may be granted upon a showing of good cause. Id.; see also Strike 3 Holdings, 2017 U.S. Dist. LEXIS 204354, at *1 (holding that good cause existed for the plaintiff to serve a third party subpoena prior to a Rule 26(f) conference). District courts in this Circuit have developed a three-factor test to determine whether good cause exists to permit the sort of early discovery Plaintiffs seek to assist in identifying unknown defendants. See MG Premium, 2020 WL 1675741, at *1; see also QOTD Film Inv. Ltd. v. Does 1-30, No. 2:16-cv-00928-APG-GWF, 2016 WL 8735619, at *2 (D. Nev. May 6, 2016). “First, the moving party should be able to identify ‘the missing party with sufficient specificity such that the Court can determine that defendant is a real person or entity who could be sued in federal court.'” MG Premium, 2020 WL 1675741, at *1 (quoting Columbia Ins. Co., 185 F.R.D. at 578). “Second, the moving party should be able to identify ‘all previous steps taken to locate the elusive defendant.'” Id. at *2 (quoting Columbia Ins. Co., 185 F.R.D. at 578). And “[t]hird, the moving party should be able to ‘establish to the Court's satisfaction that [its] suit against defendant could withstand a motion to dismiss.'” Id. (quoting Columbia Ins. Co., 185 F.R.D. at 578).
B. Plaintiffs' Motion for Early Discovery
For the reasons explained below, the court concludes that Plaintiffs' requests are tantamount to an interrogatory and that Plaintiffs have not demonstrated good cause for the requested early discovery.
a. Improper Interrogatory
To begin, Plaintiffs' request that Binance, CEX.IO, and OKX “[p]rovide the names, physical addresses, email addresses, redacted bank account numbers and banking institutions on file for the account holders associated with four distinct transaction ID numbers” (Mot. at 15) is an interrogatory because it is a written question seeking written information-not physical documents, electronically stored information, or other tangible things that are discoverable through a subpoena. See Womack v. Tate, No. 1:19-cv-00614-ADA-BAM (PC), 2023 U.S. Dist. LEXIS 121496, at *6 (E.D. Cal. July 14, 2023) (“An interrogatory is a written question propounded by one party to another who must answer under oath and in writing.”); see also Fed.R.Civ.P. 45(a)(1)(A)(iii) (noting that subpoenas may command persons to “attend and testify; produce designated documents, electronically stored information, or tangible things in that person's possession, custody, or control; or permit the inspection of premises”). What Plaintiffs seek is not a form of discovery permitted under Rule 45. See Bel Power Sols., 2023 WL 2401926, at *1. The court therefore DENIES Plaintiffs' motion to the extent it seeks an order permitting third-party discovery that is not authorized by the Federal Rules of Civil Procedure. The court notes that Plaintiffs could permissibly attempt to discover the desired information by requesting documents from Binance, CEX.IO, and OKX in compliance with Rule 45.
b. Good Cause
Plaintiffs also fail to demonstrate good cause for issuing Rule 45 subpoenas to Binance, CEX.IO, and OKX. The court considers each of the relevant three factors below. See MG Premium, 2020 WL 1675741, at *1 (setting forth the three-factor test regarding early discovery).
First, Plaintiffs have identified the Doe Defendants as individuals “associated with the operation of the [Book Exchange] platform” who had “access to [Stephen's] account.” (Am. Compl. at 5.) Accordingly, they have “identified the missing party(s) with as much clarity as possible.” MG Premium, 2020 WL 1675741, at *1. “Thus, as real persons/entities, these Does can be sued in federal court.” Id.
Second, Plaintiffs have adequately detailed the steps they took to locate the Doe Defendants. Plaintiffs hired “professional cryptocurrency tracers” and list the exact transaction ID numbers associated with the allegedly fraudulent withdrawals of Stephen's crypto funds in their complaint. (See Am. Compl. at 3-4.) Plaintiffs have come to a dead end, however, and it does not appear that there are any additional measures they could take to identify the Doe Defendants other than to obtain their identifying information from Binance, CEX.IO, and OKX. Because Plaintiffs “must serve subpoenas” to obtain they information they seek, this factor weighs in favor of finding good cause. MG Premium, 2020 WL 1675741, at *2.
The third factor is where Plaintiffs fall short. See MG Premium, 2020 WL 1675741, at *2 (stating that the third factor requires the movant to show that the complaint could withstand a motion to dismiss). Plaintiffs assert that the court has federal question jurisdiction via Section 4b of the Commodity Exchange Act (“CEA”), 7 U.S.C. § 6(b) (see Am. Compl. at 5; see also 9/12/23 Order (Dkt. # 11) at 2 (describing Plaintiffs' CEA claim)), but they have not alleged a prima facie case of fraud under Section 4b. Aside from the “Jurisdiction and Venue” section of their complaint, Plaintiffs do not discuss the CEA or Section 4b. (See generally Am. Compl.) Plaintiffs' assertion of a claim under the CEA is unlikely to survive a motion to dismiss because Section 4b “governs domestic futures transactions,” not standard crypto-asset exchanges. See First Commodity Corp. of Bos. v. Commodity Futures Trading Comm'n, 676 F.2d 1, 4 (1st Cir. 1982) (emphasis added); see also Hirk v. Agri-Rsch. Council, Inc., 561 F.2d 96, 104 (7th Cir. 1977) (“Section 4b encompasses conduct ‘in or in connection with' futures transactions.” (quoting 7 U.S.C. § 6b(a))); Congressional Rsch. Serv., Crypto-Asset Exchanges: Current Practices and Policy Issues 2 (July 23, 2021), https://crsreports.congress.gov/product/pdf/IN/IN11708 (noting that the CEA provides for the regulation of “derivatives exchanges (for example, exchanges trading Bitcoin futures rather than Bitcoins),” but “does not otherwise regulate these markets or market participants”). It does not appear that Stephen purchased cryptocurrency futures. (See generally Am. Compl.) Instead, he “deposited 51.355 units of [Ethereum] into his Book Exchange account,” which were later allegedly dispersed and withdrawn by the Doe Defendants. (Id. at 3.)
The court concludes that Plaintiffs' complaint is unlikely to survive a motion to dismiss. Good cause therefore does not currently exist to subpoena Binance, CEX.IO, and OKX for information concerning the Doe Defendants. See MG Premium, 2020 WL 1675741, at *2. Plaintiffs may file a second amended complaint against the Doe Defendants that plausibly alleges a violation of federal law in accordance with the Supreme Court's decisions in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2006).
IV. CONCLUSION
For the foregoing reasons, the court DENIES Plaintiffs' motion to subpoena third parties (Dkt. # 12). The court GRANTS Plaintiffs leave to file a second amended complaint by no later than December 29, 2023. Plaintiffs may then file a renewed ex parte motion for leave to serve third-party subpoenas prior to a Rule 26(f) conference by no later than January 26, 2024.