On February 24, 2014, the Mt. Gox bitcoin exchange went offline following a series of hacks through which tens of thousands of bitcoin were stolen. Following Mt. Gox’s collapse, regulators, prosecutors, and civil plaintiffs pursued Mt. Gox and related individuals to seek to hold responsible parties to account. Among those actions was a purported class action filed in the United States District Court for the Northern District of Illinois, on behalf of a purported class of more than 30,000 Mt. Gox customers against, among others, Mt. Gox and Mark Karpeles (Mt. Gox’s principal). See Greene v. Karpeles, Case No. 14 Civ. 1437 (N.D. Ill.) (filed Feb. 27, 2014). The case has a lengthy history, but in its present incarnation it has one defendant—Karpeles—and a sole plaintiff—Greene—who sought to certify a class of Mt. Gox customers. On June 22, 2021, the Honorable Gary Feinerman denied that request. Click here for a copy of Judge Feinerman’s Memorandum Opinion and Order.
And that gets to the heart of this decision. Class certification in federal court is governed by Rule 23(a) of the Federal Rules of Civil Procedure. Before a class may be certified, it must satisfy the four requirements of Rule 23(a): “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” In addition, the proposed class must satisfy one of the categories in Rule 23(b); as applicable here, it must be “a case in which the common questions predominate and class treatment is superior.” Where the questions of law or fact common to class members do not predominate over any questions affecting only individual members, then the proposed class does not satisfy the predominance requirement.
Decisions granting or denying class certification often are fact specific and do not garner much attention beyond the case in which the decision is made. But the Mt. Gox case is worthy of note for at least two reasons. First, the decision is among a very small group of cases examining class certification in the crypto context. It is worthwhile to watch the development of the law in this nascent area. Second, and more practically, when a court grants certification in a class action, it is an important victory for the class because it often forces the defendants to come to the bargaining table and settle soon thereafter. Conversely, when defendants defeat class certification—which, absent a change on appeal or an amended pleading, means the case can move forward with only the named plaintiff—it is an important victory for the defendants because it drastically reduces the liability landscape the defendants face and often brings a fairly quick close to the litigation.