Reynolds v. Binance Holdings Ltd.

Background

Steven Cody Reynolds alleged that Binance unlawfully seized and confiscated cryptocurrency in his account. He asserted claims for conversion, unjust enrichment, and negligence. According to the complaint, Binance had retained Reynolds to support its online communications with English-speaking customers, compensating him with Binance tokens that he kept with other cryptocurrency in his Binance account. After Reynolds stopped providing services, Binance allegedly restricted his account so that he could not withdraw assets. Reynolds alleged that the account contained approximately $285,000 in digital currencies and later showed a zero balance.

Binance moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), which allows dismissal when the court lacks personal jurisdiction over the defendant. Reynolds also requested permission to conduct jurisdictional discovery, meaning discovery intended to obtain facts relevant to whether the court had authority over Binance.

Personal Jurisdiction

The court explained that general personal jurisdiction over a company ordinarily exists where the company is incorporated or has its principal place of business. In an exceptional case, a company may also be subject to general jurisdiction where its connections with a state are so continuous and substantial that the company is essentially based there.

The court held that Reynolds had not shown that Binance was incorporated or had its principal place of business in California. The court rejected Reynolds’s argument that California should be treated as Binance’s principal place of business because Binance had no other more suitable location. It also found that allegations concerning Binance’s customers, cloud operations and servers, and investments and partnerships in California showed contacts with California but did not show that Binance was essentially based there.

Reynolds also argued that Binance was subject to jurisdiction through its relationship with BAM, which he described as Binance’s alter ego. An alter-ego theory asks whether two legally separate companies have such unity of ownership and control that the court should treat them as one. The court held that Reynolds had not shown the required unity of interest. It found that shared executives on BAM’s board and a shared chief financial officer did not by themselves establish that relationship. It also found that BAM’s address, shared websites, and shared or allegedly shared technologies were insufficient. The court considered a declaration stating that Binance and BAM maintained separate assets, records, and operations and that Binance did not control BAM’s day-to-day affairs.

The court further held that Reynolds had not shown that respecting the companies’ separate identities would cause the kind of fraud or injustice required under the alter-ego test. The court did not need to analyze that second part after finding that Reynolds failed to show unity of interest, but it stated that his allegations of potential future losses did not establish the necessary history of bad-faith conduct.

Jurisdictional Discovery and Disposition

The court denied jurisdictional discovery because Reynolds offered only bare allegations and did not provide details showing that discovery would establish facts supporting jurisdiction. The court found this insufficient, particularly in light of Binance’s specific denials and the declaration addressing BAM’s independence.

Judge Jacquelyn Scott Corley granted Binance’s motion to dismiss for lack of personal jurisdiction and denied Reynolds’s request for jurisdictional discovery. The court stated that allowing Reynolds to amend the complaint to allege general jurisdiction would be futile. It dismissed the claims without prejudice to Reynolds bringing them in a jurisdiction that has personal jurisdiction over Binance. The order also stated that it disposed of Docket Nos. 20 and 21, but the opinion’s express rulings are the grant of the dismissal motion and denial of jurisdictional discovery.