The civil rehabilitation proceedings in relation to MtGox in Japan have resulted in a temporary stay of one of the civil actions brought against Karpeles and Mizuho in the United States.

Shortly after the start of civil rehabilitation proceedings in relation to MtGox in Japan, the effect of these proceedings on lawsuits launched by US clients of the notorious Bitcoin exchange start to become apparent.

Earlier this week, one of the civil actions brought by US customers of MtGox was stayed in light of the Japanese civil rehabilitation proceedings.

The case, which was launched by Jonathan Carmel at the California Central District Court in March this year, arises from the collapse of MtGox. Jonathan Carmel held $52,493.22 and unsuccessfully attempted to withdraw his funds from the exchange. For this action, the plaintiff seeks to hold Mark Karpeles (former head of the exchange) and Mizuho accountable.

The plaintiff asserts claims of negligence and fraud against Karpeles, alleging that he breached his duty of care owed to investors on the Mt. Gox exchange, which resulted in losses, and that he made false promises of safety and security, which were designed to (fraudulently) encourage individuals to deposit money and/or bitcoin.

The plaintiff asserts a claim of tortious interference against Mizuho Bank, on the theory that its unilateral termination of its provision of outbound wire transfers to Mt. Gox’s U.S. customers knowingly disrupted the contracts between such customers and the exchange.

Mizuho has filed a motion to dismiss. The bank contends that it is not subject to personal jurisdiction in California, and that Carmel has failed to plead the essential elements of his tortious interference claim, including that Mizuho (1) knew that he had a contract with Mt. Gox or that he was even a Mt. Gox user; (2) intentionally induced a breach of that contract; or (3) caused any loss that Carmel suffered.

The plaintiff has asked for a stay of the case. On June 22, 2018, the Tokyo District Court converted the Japanese bankruptcy to a new civil rehabilitation proceeding. The effect of this new Japanese proceeding is potentially significant to claims asserted in this case, Carmel says, particularly because the appointed rehabilitation trustee announced that the Mt. Gox estate may have sufficient assets to pay in full the claims of Mt. Gox users.

These claims are set to be approved (or not) by January 24, 2019, followed by the submission of aproposed rehabilitation plan (providing for any modifications to rights of civil rehabilitation creditors and a payment plan) on February 14, 2019.

Given the unique posture of this case and to conserve the Court’s limited resources, the Parties recommend that, the case against Mizuho be stayed until February 28, 2019. At that time, the Parties expect to have an indication of whether Plaintiff and other putative class members are likely to receive full or partial recoveries through the Japanese civil rehabilitation proceeding (an outcome that may affect the scope of the class that Plaintiff will seek to certify in this case) and, thus, will be better positioned to make an informed recommendation to the Court about appropriate next steps in the case.

In addition, the recommended stay will provide Plaintiff with additional time to complete service on Karpeles and will potentially give the Parties a better indication of whether Karpeles will participate in these proceedings.

During the hearing held earlier this week, the Court conferred with counsel regarding the civil rehabilitation proceeding, which is currently pending in Japan. The Court ordered this case stayed until March 2019. Accordingly, the Scheduling and Status Conference are continued to March 18, 2019. Counsel are set to file an updated report no later than March 11, 2019, or within 14 days of the conclusion of the proceedings in Japan, whichever is to occur first.

Regarding Mizuho’s motion to dismiss the complaint against it, the Court stated its tentative views that it is inclined to grant Mizuho Bank, Ltd’s Motion to Dismiss the Complaint or, Alternatively, to Strike All Class Action Allegations, for lack of personal jurisdiction over the bank. The Court took the Motion under submission and a ruling will be issued.

The case is captioned Jonathan Carmel v. Mizuho Bank, Ltd. et al (2:18-cv-02483).