The price of silence: Mizuho’s inaction comes into focus of MtGox case

Maria Nikolova

The bank insists its silence and inaction cannot render it culpable for any damage caused to US customers of MtGox who could not get their money back after the Exchange got into trouble.

Mizuho Bank, which has been accused of creating transaction difficulties for MtGox’s customers, is stepping up its defense in the United States by using a rather unconventional argument which centers around its inaction and silence.

Let’s recall what the case is about. When MtGox’s head Mark Karpeles refused to close Mt. Gox’s account at Mizuho, the bank instituted a series of policies it kept secret from the public that were designed to frustrate Mizuho’s relationship with Mt. Gox. Thus, Mizuho limited and ultimately stopped processing international wire withdrawals from Mt.Gox’s Mizuho account. Mizuho, however, continued to accept international cash deposits into the Mt. Gox account.

In January 2014, plaintiff Joseph Lack, a resident of California, joined Mt. Gox. Upon joining, Lack wired $40,000 to Mt.Gox’s Mizuho account. Mizuho accepted the transfer and collected the transaction fee. On February 24, 2014, the website of the exchange went dark. Lack waited in vain for his deposit to appear in his Mt Gox account. He did not succeed in getting his money back.

Accordingly, Lack brought an action against Karpeles and Mizuho. Lack alleges that Mizuho had a duty to disclose material information to him and the other depositors. Also, the plaintiff accuses Mizuho of intentionally defrauding him by concealing that the bank was no longer accepting withdrawal requests. Furthermore, the plaintiff alleges that Mizuho caused him damage.

Mizuho has earlier tried to rebut the claims but the California Central District Court sided with the plaintiff  and denied the bank’s motion to dismiss.

Now, Mizuho aims to appeal from that Court’s decision. It filed the respective motion on Monday, July 23rd.

The official question that Mizuho raises is the following:

May a foreign bank defendant’s passive acceptance of wire transfers, coupled with an allegedly wrongful silence or inaction pursuant to the bank’s generally applicable worldwide policy, subject a bank to personal jurisdiction in each forum state in which a wire transfer originates, consistent with the requirements of the Due Process Clause of the United States Constitution?

The issue at hand is of wide applicability: whether a foreign bank’s alleged silence or inaction pursuant to the bank’s generally applicable worldwide policy creates a substantial connection with the forum state (in this case, California) so as to support personal jurisdiction. Foreign banks indeed accept wire transfers from their customers’ customers all the time.

Mizuho then goes on to explain how wires are something pretty much unrelated to it. Here is the precise wording:

“To accept a wire transfer is passive conduct, especially because, by its nature, a wire transfer is not a communication between people, but just a transmission of information electronically from a machine at one bank to a machine at another. Indeed, Lack is not alleged to have had any direct contact with Mizuho”.

Mizuho is alleged to have simply remained silent – which is to say, it said (and did) nothing. In substance, according to the bank, the transaction was between Lack and Mt. Gox, whereas Mizuho played no substantive role.

Mizuho does not dispute that Mt. Gox customers reside in 175 countries, and at least 30,000 of them live in the United States. The bank also concedes that if a court in California may exercise personal jurisdiction over Mizuho based solely on Mizuho’s receipt of wire transfers without disclosing to the sender the alleged change in Mizuho’s relationship with its customer, then so can courts in all other jurisdictions in the United States where Mt. Gox customers reside.

The defendant bank insists that its “inaction” was not targeted at California-based clients of MtGox. The damage caused to Lack is dubbed by the bank to be incidental.

The case, captioned Joseph Lack v. Mizuho Bank, Ltd., et al (2:18-cv-00617), continues at the California Central District Court.

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