Shin v. ICON Foundation

Background

This order concerns Mark Shin’s motion under Federal Rule of Civil Procedure 12(b)(6), which asks whether a pleading states a legally sufficient claim. ICON filed a class-action counterclaim against Shin asserting claims for money had and received, unjust enrichment and restitution, and declaratory relief.

The parties agreed that Shin used a software defect in Revision 9 of the ICON Network to generate cryptocurrency tokens. On August 22, 2020, Shin attempted to unstake 25,000 ICX tokens, but the defect immediately gave him 25,000 additional tokens. He repeated the process and allegedly received nearly 14 million new ICX tokens. The opinion states that the tokens were worth nearly $9 million at the time and more than $21 million at the time of the order. ICON alleged that Shin refused to return the tokens and transferred some of them to exchanges, relatives, and acquaintances.

Shin originally sued ICON, and his remaining claims were conversion and trespass to chattel. ICON then filed its counterclaim. The court treated money had and received and unjust enrichment as separate claims, even though ICON pleaded them together.

Unjust Enrichment and Restitution

The court held that ICON adequately pleaded unjust enrichment at this stage. Unjust enrichment generally concerns a benefit that a defendant received and unjustly retained at another’s expense. The court found that ICON sufficiently alleged both parts: Shin received nearly 14 million new ICX tokens, and his actions allegedly diluted the value of tokens held by members of the ICON Community.

The court also concluded that unjust enrichment was an appropriate claim in these unusual circumstances. It noted that the parties agreed there was no contract between Shin and the ICON Foundation and that the decentralized nature of the ICON Network made it unclear whether the ICON Foundation could enforce the Network’s constitution. The court therefore allowed the equitable claim to proceed.

The court rejected Shin’s argument that he could not have been enriched because some tokens were frozen or assets were seized by the federal government. Based on the counterclaim, it was plausible that Shin retained at least some tokens or related proceeds. The court also reasoned that transferring or losing an improperly obtained benefit would not automatically defeat an unjust-enrichment claim.

Money Had and Received

The court dismissed ICON’s money-had-and-received claim with leave to amend. That claim requires a plaintiff to show that the defendant received money belonging to the plaintiff, that the money was not used for the plaintiff’s benefit, and that the defendant did not return it.

The court found that ownership was central to the claim. ICON alleged that the newly generated ICX tokens belonged to the entire ICON Community, but it did not provide enough specific facts or another legal standard addressing traditional indicators of ownership, including title, possession, and control. The court therefore found the allegations too conclusory to proceed.

The court rejected Shin’s separate argument that judicial estoppel barred ICON from alleging that the tokens belonged to the ICON Community. Judicial estoppel is a rule that can prevent a party from taking a position clearly inconsistent with an earlier position. The court found that ICON’s positions were not clearly inconsistent and that its earlier statements were not deliberate, clear, and unequivocal in the required way.

Declaratory Relief

The court denied Shin’s motion to dismiss ICON’s declaratory-relief claim. ICON sought declarations concerning the software mistake, Shin’s alleged use of the malfunction, the return or destruction of the tokens, and proceeds or assets allegedly acquired with them.

Shin argued that the requested declarations duplicated the unjust-enrichment claim or merely declared ICON’s entitlement to other remedies. ICON responded that destruction of some of the tokens was a distinct possible remedy. The court agreed that the destruction remedy was different and that preserving flexible remedies was particularly useful because the case involved a novel form of property. The declaratory-relief claim could therefore proceed.

Disposition

The court granted in part and denied in part Shin’s motion to dismiss ICON’s counterclaim, with leave to amend. The unjust-enrichment and restitution claim and the declaratory-relief claim may proceed. The money-had-and-received claim was dismissed with leave to amend.

The opinion also states that Shin’s separate motion to strike was denied in part and granted in part. The provided text does not identify which specific portions of that motion were denied or granted. The order was signed by Hiam H. Orrick, United States District Judge.