Lai v. Coinbase Global, Inc.

Background

Dennis Chan Lai sued Coinbase Global, Inc. and Coinbase, Inc., which the opinion collectively calls “Coinbase.” Lai and Coinbase consented to the magistrate judge’s jurisdiction. On August 25, 2022, the court granted Coinbase’s unopposed motion for a more definite statement under Federal Rule of Civil Procedure 12(e). The court had found that Lai’s allegations about diversity jurisdiction were incomplete, that his factual allegations were almost unintelligible, and that the basis for his claims was unclear. It ordered him to file an amended complaint complying with Rule 8 by September 9, 2022.

Lai instead filed a document titled “Response to Defendants Notice for More Definite Statement,” along with exhibits. The court construed those filings as his amended complaint. The caption added Financial Geek and Crypto Chronicle as defendants. The opinion says Lai appeared to allege that he opened a Coinbase cryptocurrency account after reading Internet statements, including statements by Financial Geek and Crypto Chronicle, that Coinbase would refund his money if the account were hacked. He alleged that Coinbase did not refund the money after the account was hacked. He listed possible claims including false advertising, unjust enrichment, violations of California Business and Professions Code sections 17200 and 17500, and negligence.

Motion and analysis

Coinbase moved to strike Lai’s response and dismiss the case under Rules 12(e) and 12(f), arguing that Lai had not followed the August 25 order and had not filed a complaint complying with Rule 8. Lai did not oppose the motion, and the scheduled hearing was vacated.

The court agreed that Lai’s response and exhibits did not comply with the August 25 order or Rule 8(a). It described the 39-page response as rambling and frequently incoherent, with jumbled allegations and lengthy quotations from legal opinions. The court said it was virtually impossible to determine the specific conduct supporting Lai’s claims against Coinbase or the two added defendants.

The court nevertheless concluded that striking the complaint was not the appropriate remedy. It explained that dismissal may be available when a plaintiff violates an order requiring a more definite statement, but that dismissal with prejudice is a harsh remedy and courts should first consider less drastic alternatives. The court noted that Lai had already been warned that his original complaint did not comply with Rule 8, yet his new filing was no less confusing.

Order

Because Financial Geek and Crypto Chronicle had not appeared or consented to the magistrate judge’s jurisdiction, the court intended to reassign the case to a district judge with a recommendation about whether the case should be dismissed. Judge Spero ordered Lai to show cause why dismissal with prejudice should not be recommended for failing to comply with the August 25 order and Rule 8(a). The court gave Lai until November 4, 2022, to file an amended complaint clearly and concisely identifying each claim against each defendant and the conduct allegedly violating the legal right underlying each claim. The court stated that, if Lai failed to meet those requirements, it intended to recommend dismissal of the case in its entirety with prejudice. The opinion does not state that the case was dismissed at that time.