Paxful, Inc. v. Strandberg

Background

Paxful, Inc. alleged that it mistakenly made excessive profit-share payments to its former consultant, Jan Strandberg. In or about 2016, Paxful and Strandberg agreed that Strandberg would receive payments equal to 1.5% of Paxful’s net profits for each fiscal year. Paxful made monthly payments using reasonable estimates of its expected profits. Between August 2018 and December 2019, it paid Strandberg $172,603.98 in estimated profit shares, primarily in Bitcoin.

After a financial audit, Paxful determined that its actual profits were lower than estimated and that Strandberg had received $83,913.19 more than he was entitled to receive. Paxful demanded repayment, but the complaint alleged that Strandberg had not paid. Paxful asserted claims for unjust enrichment, payment by mistake, and money had and received. It based federal subject-matter jurisdiction on the parties’ diverse citizenship.

Motion and Report and Recommendation

Strandberg moved to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction, Rule 12(b)(2) for lack of personal jurisdiction, Rule 12(b)(6) for failure to state a claim, and the doctrine allowing dismissal when another forum is more appropriate. The district court referred the motion to Magistrate Judge Sarah Netburn for a report and recommendation.

Strandberg submitted a declaration stating that he worked as a consultant for Paxful’s Estonian affiliate, first through a company he owned in Finland and later through a company he owned in Estonia. He stated that he worked in Finland initially, moved to Estonia in 2017, and worked at the affiliate’s offices there. Paxful argued that New York could exercise personal jurisdiction under New York’s long-arm statute because Strandberg had extensive communications about his profit-share payments with Paxful executives and finance employees based in New York City.

Judge Netburn recommended dismissal for lack of personal jurisdiction. She concluded that the relevant New York contacts consisted of calls concerning profit-share payments for work Strandberg performed in Estonia for Paxful’s Estonian affiliate. Although physical presence in New York was not required, Judge Netburn determined that these contacts were not sufficiently substantial in quality to show that Strandberg had conducted business in New York. She also concluded that exercising jurisdiction would not satisfy due-process requirements.

District Court’s Review and Ruling

Neither side objected to the report and recommendation, despite the stated fourteen-day objection deadline and warning that failure to object would waive judicial review. The district court therefore reviewed the recommendation for clear error. The court found it thorough, well reasoned, and free of clear error, and adopted it in its entirety.

The court granted Strandberg’s motion under Rule 12(b)(2) and dismissed Paxful’s claims for lack of personal jurisdiction. The dismissal was without prejudice. The court closed the case but did not decide the merits of Paxful’s claims or the other grounds for dismissal.