The United States District Court for the District of New Jersey recently granted a Plaintiff’s Motion for expedited discovery and for leave to serve third-party subpoenas prior to a Federal Rule 26(f) conference where the information sought in those subpoenas was critical to properly amending and serving Plaintiff’s Complaint.
In Tyson v. Coinbase Global, Inc., 2024 U.S. Dist. LEXIS 2576 (D. N.J. Jan. 4, 2024), Plaintiff, Sydney Tyson, owned bitcoin in an account managed by Defendant, Coinbase Global, Inc. In the Summer of 2023, Plaintiff alleged that his Coinbase account was hacked leading to suspicious emails confirming transactions that he never completed. The strange activity continued until one day, Plaintiff received an email addressed to someone named “Paul” noting that his account had been locked. Plaintiff was never able to unlock or deactivate his account and alleges that he had $298,500 worth of bitcoin taken from his account. After learning about the alleged theft, Defendant refused to reverse the transaction or compensate Plaintiff for his alleged losses.
Less than four months after the alleged theft took place, Plaintiff filed a Complaint in the United States District Court for the District of New Jersey containing counts stating causes of action under the Computer Fraud and Abuse Act, New Jersey’s Computer-Related Offenses Act and common law claims of fraud, conversion, replevin and unjust enrichment. Shortly after filing his Complaint, Plaintiff hired an outside consultant to trace the allegedly stolen bitcoin and the consultant was able to identify a collection of digital wallets into which the stolen cryptocurrency was placed. However, by nature of the exchange taking place on a cryptocurrency platform, the identities of the human individuals who owned those digital wallets could not be determined. Therefore, the Complaint was unable to name the alleged hackers and bitcoin thieves because cryptocurrency transactions do not allow users to identify persons holding or transferring assets on any cryptocurrency exchange.
Given this time-sensitive issue of pleading fictitious parties, Plaintiff filed a motion seeking expedited discovery and for leave to file four third-party subpoenas on the cryptocurrency exchanges on which Plaintiff’s outside consultant was able to trace the allegedly stolen bitcoin. Plaintiff’s subpoenas would seek, among other documents and information, “All documents related to [the wallet address], including account opening and closing documents, the identity of the account holder, all proofs of identification (such as government-issued photo ID), date of birth, Social Security Number, telephone number, electronic mail address, residential/mailing address, and Know York Consumer (“KYC”) and Anti-Money Laundering (“AML”) information compiled by [the exchange]…”
In ruling on Plaintiff’s Motion, the Court cited Federal Rule of Civil Procedure 26 and explained that while the scope of federal discovery is broad, parties are generally barred from seeking discovery before the completion of a Rule 26(f) conference. The Court did note that it had the ability to grant a party leave to conduct discovery prior to this conference when the request was reasonable in light of the circumstances presented by the moving party. Citing the “good cause” standard, the Court noted that such “good cause” exists where the need for expedited discovery outweighs the prejudice to the responding party. In so deciding, the Court was bound to consider (1) the timing of the request in light of the formal start to discovery; (2) whether the request is narrowly tailored; (3) the purpose of the requested discovery; and (4) whether the discovery burdens Defendants and whether Defendants can respond to the request in an expedited manner.
Applying these factors, the Court agreed that “good cause” was present to permit expedited discovery. Specifically, the motion for leave to file the third-party subpoenas was filed just eight days after Plaintiff’s Complaint was filed and the information sought, namely the identities of digital wallet holders, was necessary in order to serve Plaintiff’s Complaint. Further, the Court found that the information was being sought by non-party cryptocurrency exchanges, which did not prejudice the named defendants in any way. The Court noted that these digital wallet holders may have held information vital to resolution of the case.
In granting Plaintiff’s Motion for expedited discovery and for leave to file third-party subpoenas, the Court did curtail the breadth of information sought by these subpoenas. Specifically, the Court determined that the legal name, street address, telephone number and email address of these wallet holders would be sufficient information to allow Plaintiff to identify the wallet holders and serve his Complaint upon them. This limitation was imposed in order to provide Plaintiff the relief he sought and to allow this case to proceed while also respecting the boundaries established by Rule 26(f) making all other information sought by Plaintiff discoverable after this mandated conference.
The United States District Court for the District of New Jersey’s ruling is indicative of how the Federal Rules of Civil Procedure are adapting to technological advances that impact the needs of attorneys in conducting modern discovery. As technology continues to evolve and the information underlying civil claims becomes more complex, Federal Courts have shown the willingness and ability to relax certain Federal Rules in the name finding equitable solutions to novel and challenging legal issues at the inceptions of civil cases.
