Plaintiff alleges she didn't receive agreed BTC, but Court lacks personal jurisdiction to hear case

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.

As always, Rosario summaries are “NMR” and Palley summaries are “SDP".

[related id=1] White v. Sharabati, C.A. No. N18C-02–170 WCC (Del. Super. Ct., decided July 2, 2019) [NMR]

At the heart of this case involves an exchange of 484,000 xrp for 46.5 bitcoin in 2017 that went wrong. Yep. Really. Legally though the case is about personal jurisdiction and escrow. Two concepts we cover quite frequently at the Crypto Caselaw Minute.

Elizabeth White is our plaintiff who was allegedly contacted by the defendant Fadi Sharabati on Dec. 27, 2017, and “ asked “to enter into a cryptocurrency transaction, in which [she] would sell 484,000 [xrp] to [Mr. Sharabati] in exchange for 46.5 Bitcoin using a certain online escrow platform.”” Allegedly, the bitcoin never arrived, and somehow the plaintiff traced her xrp to an account on Bittrex.

White filed a lawsuit in February of 2018, and amended her complaint in April identifying Sharabati as the defendant, then a default judgment is entered against Sharabati in May of 2018. Subsequently, the plaintiff moved to garnish the crypto, and ultimately receives $455,010.79 worth of crypto from Bittrex, and for good measure they found some on Poloniex worth about $30,000. As you can imagine this got Sharabati’s attention, and on Nov. 19, 2018, he filed a motion to vacate the default judgment, and that motion was granted on Dec. 17, 2018. His attorney’s then filed this motion seeking to dismiss the case for lack of personal jurisdiction, and to return or escrow the funds that were garnished under the default judgment. This brings us to the present motions.

Personal jurisdiction is the idea that to be subject to the jurisdiction of a court you have to have some connection to the jurisdiction in question. That connection could be a bunch of different things like living there, doing business there, availing yourself of the benefits of the jurisdiction, etc. Here, Sharabati was a Palestinian citizen who resided in Morocco. White lives in New York and does business through the White Company, which is a Delaware entity. White’s argument is that by allegedly using Bittrex, a Delaware company based in Seattle, to hold the stolen funds Sharabati was subject to jurisdiction in Delaware. The Court disagreed. As the Court put it:

Except for Bittrex’s incorporation under Delaware law, this litigation has no other connection to the state, and there is no evidence that Mr. Sharabati has affirmatively established additional contacts with Delaware beyond his mere use of the trading platform.

Or to put it another way, “[u]nder Plaintiff’s logic, any nonresident who uses the website of a Delaware corporation, even once, would be subject to this Court’s jurisdiction.” Checks out.

The second motion was to return the funds that were sent to White by Bittrex and Poloneix. The Court stayed this motion. The Court explained that “[t]he Court is very concerned that forcing Ms. White to return the garnished funds to Mr. Sharabati will result in her never recovering for the alleged fraud committed by Defendant.” In light of this concern the Court ruled that they “will delay the effective date of its dismissal for 45 days to allow Plaintiff time to file a subsequent action in a proper jurisdiction and take the steps necessary to protect the garnished cryptocurrency for litigation.” White needs to file in another jurisdiction that makes sense and see that the issue is resolved on the merits. Lucky outcome for the plaintiff.

The Block is pleased to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part III of this week's analysis, Crypto Caselaw Minute, is above.