Strobel v. Lesnick

Background

Neal Strobel sued Glen James Lesnick, Teresa Lesnick, Joseph Carr, and unknown defendants. He asserted claims including conversion, securities-law violations, fraud, breach of fiduciary duty, negligence, negligent misrepresentation, breach of contract, unjust enrichment, and civil conspiracy. He alleged that he transferred cryptocurrency worth almost $58,000 after investing through the World of Crypto Mining website. The funds were later traced to wallets associated with Gemini and Coinbase.

Strobel asked for permission to serve third-party subpoenas on Coinbase and Gemini before the parties’ required initial discovery conference. He sought information that could identify the owners of the wallets and the unknown defendants. He also separately sought permission to serve the named defendants by publication.

Legal standard

Under Federal Rule of Civil Procedure 26(d), a court may allow discovery before the parties’ Rule 26(f) conference when it is convenient for the parties and witnesses and serves the interests of justice. Courts in the Ninth Circuit generally require “good cause.” For early discovery aimed at identifying unknown defendants, the court considered whether Strobel had identified the unknown defendants with enough specificity, described efforts to locate them, shown that the complaint could withstand dismissal, and shown that the requested discovery was reasonably likely to produce information permitting service.

Analysis

The court focused on whether the complaint could withstand a motion to dismiss. Strobel allegedly lived in Washington, and the defendants appeared to have connections to Washington, Colorado, or Southern California. The alleged fraud apparently occurred in Washington. The court found no discernible connection to the Northern District of California and questioned both personal jurisdiction—the court’s authority over the defendants—and venue—the proper federal district for the case.

The court said nothing in the record suggested general or specific personal jurisdiction over the defendants. It also said that, in this tort case, the record did not show that the nonresident defendants purposefully directed their activities toward California or completed a transaction with California or a California resident. The court therefore denied the discovery application without prejudice to Strobel establishing that the Northern District of California was the proper district. It noted that, if the district was wrong, the case could potentially be transferred to the appropriate district, which it described as presumably the Western or Eastern District of Washington.

Service by publication

The court postponed the service-by-publication issue until jurisdiction was clarified. It stated that, assuming jurisdiction, service by publication appeared appropriate, and it suggested adding email service if Strobel had email addresses for the defendants.

Disposition

The court denied the application for discovery without prejudice and postponed the service issue. The order disposed of ECF Nos. 13 and 15. Laurel Beeler, United States Magistrate Judge, signed the order on August 13, 2021.