1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 JUSTM2J LLC, No. 2:25-cv-0380-DAD-SCR 12 Plaintiff, 13 v. ORDER 14 AYDEN BREWER, JON LITZ, JASON ST. GEORGE, and JOHN DOE 1, et al., 15 Defendants. 16

17 18 Before the court is a motion by Defendants Ayden Brewer, Jon Litz, and Jason St. George 19 to stay discovery pending the District Judge’s decision on their motions to dismiss (ECF Nos. 15- 20 16) the First Amended Complaint (“FAC”), or, alternatively, to limit discovery to the 21 identification of any Doe defendants. ECF Nos. 39, 44. For the reasons provided below, the 22 Court largely denies the motion, but stays jurisdictional discovery. 23 I. INTRODUCTION 24 A. Operative Complaint 25 The FAC explains that the Opentensor Foundation (“Opentensor”) is the owner and 26 developer of the Bittensor network (“Bittensor”), an open-source platform AI researchers can use 27 to develop and improve each other’s digital commodities. ECF No. 14 at ¶ 21. Users are paid for 28 meaningful computations or machine-learning in TAO, digital tokens worth hundreds of dollars 1 each and stored in a cryptocurrency wallet. Id. at ¶¶ 22-23. Opentensor uses PyPI, a password 2 protected service, to upload and distribute Bittensor updates to users. Id. at ¶ 4. The FAC’s 3 allegations concern a “Bittensor Attack” involving the digital theft and concealment of 61,793.90 4 TAO—worth about $30.3 million as of February 28, 2025—across 32 Bittensor wallets from May 5 22 to July 2, 2024. Id. at ¶ 2. 6 California resident Brewer and New York resident St. George were Bittensor developers 7 until early 2024, using the screennames “Rusty” and “Philanthrope,” respectively. Id. at ¶¶ 12- 8 13. They also owned and operated Vertex Storage Solutions, LLC (“Vertex”), headquartered in 9 Sacramento, California. Id. at ¶¶ 12-13, 43. They incorporated Vertex in December 2023 to 10 serve as owner of the “FileTAO” Bittensor subnet. Id. at ¶¶ 12-13, 42. Litz, a Missouri resident 11 whose online handle is “0xJones,” unsuccessfully applied to be a Bittensor developer in January 12 2024, after which he operated FileTAO with Brewer and St. George. Id. at ¶ 14. 13 Before leaving Opentensor, St. George was the developer who designed Bittensor’s 14 software code. Id. at ¶ 34. He was also one of only six people who had Opentensor’s API key.1 15 Id. at ¶ 27. Before leaving Opentensor, Brewer previewed several elements of what would 16 become the Bittensor Attack to other Opentensor employees. Id. at ¶ 39. This included 17 transferring cryptocurrency without being detected, using “privacy coin” like Monero to conceal 18 proceeds, and registering accounts on exchanges that do not require using the owner’s legal name. 19 Id. at ¶ 39. As of the Bittensor Attack, Litz was a member of a Telegram channel related to 20 Railgun, a service enabling users to obscure cryptocurrency transaction information. Id. at ¶ 40. 21 On May 20, 2024, Defendants registered the domain name opentensor.io, specifically to 22 mimic Opentensor’s domain. Id. at ¶ 46. On May 22, 2024, Opentensor released a Bittensor 23 update, “version 6.12.2,” onto Github. Id. at ¶ 47. Moments later, Defendants illicitly used 24 Opentensor’s PyPI key to upload their own file named “version 6.12.2” to PyPI (“Attack 25 Software”), blocking the upload of the legitimate version 6.12.2 update. Id. at ¶ 48. The Attack 26 Software was identical to the legitimate update on Github except that once the users made a 27 1 “PyPI uses proprietary API tokens (or ‘keys’) to authenticate the source of each software 28 package uploaded to PyPI.” Id. at ¶ 26. 1 subsequent cryptocurrency transfer, the private key associated with the user’s crypto wallet was 2 transmitted to opentensor.io. Id. at ¶ 6, 48. 3 Also on May 22, 2024, FileTAO released an update requiring users to install “version 4 6.12.2” of Bittensor. Id. at ¶ 85. Requiring Bittensor users to install Bittensor updates 5 immediately upon their release is itself unusual. Id. at ¶ 86. In any case, while those who 6 downloaded the Bittensor update from Github were unaffected, those who used PyPI downloaded 7 the Attack Software instead. Id. at ¶¶ 49-50. Between May 22 and July 2, when Opentensor 8 discovered and removed the Attack Software from their PyPI account, Defendants used 32 9 different wallet keys to steal 61,793.90 TAO. Id. at ¶¶ 51-54. 10 Defendants attempted to launder the TAO via the tools and techniques Brewer had 11 previewed to Opentensor employees. They exchanged TAO for other crypto assets before 12 exchanging those assets for Monero. Id. at ¶ 57. They transferred assets to exchanges and private 13 wallet addresses. Id. at ¶ 57. These wallets include Railgun and a private wallet that was used in 14 at least one prior cryptocurrency theft and possibly a money laundering operation (“Suspected 15 Laundering Service”). Id. at ¶ 57. Efforts to hide the stolen cryptocurrency has succeeded insofar 16 as its current location is not completely known. Id. at ¶¶ 58-62. 17 Some evidence within the blockchain connects Defendants to the Bittensor Attack. For 18 example, one of Litz’s Ethereum wallets (“Subnet Wallets”), 0xD5, transferred assets to the 19 Suspected Laundering Service between June 8 and July 16, 2024. Id. at ¶ 76. This transaction 20 also used an intermediate address associate with the Bittensor Attack, 0x5E. Id. at ¶ 77. 21 In May 2024, before the attack, Defendants attempted to negotiate an expedited $3.5 22 million sale of FileTAO. Id. at ¶ 84. Defendants stopped communicating with the prospective 23 purchaser on June 8, began transferring FileTAO’s assets out of Bittensor on June 10, and 24 deregistered FileTAO on Bittensor on June 11. Id. at ¶ 88. St. George and Litz deleted their 25 online presence on Discord, Twitter, and other social media sites. Id. at ¶¶ 89-90. Vertex 26 dissolved in September. Id. at ¶ 91. 27 Thirteen victims, representing 99% of the lost TAO, assigned all legal claims to Plaintiff 28 after the Bittensor Attack. Id. at ¶ 93. Plaintiff is a Delaware entity with a principal place of 1 business in Florida, and a single member living in Texas. Id. at ¶ 11. Plaintiff alleges violations 2 of the Computer Fraud and Abuse Act (“CFAA”) (id. at 20-21), the Wiretap Act (id. at 21-22), 3 and California Penal Code § 496 (id. at 24); fraud (id. at 22); conversion (id. at 22-23); unjust 4 enrichment (id. at 23); and constructive trust and disgorgement of funds (Id. at 23). 5 B. Procedural History 6 Plaintiff filed this action on January 27, 2025, and the FAC on February 28. ECF Nos. 1, 7 14. On April 8, Brewer moved to dismiss the action for failure to state a claim. ECF No. 15. 8 Litz and St. George also moved to dismiss the action for lack of personal jurisdiction and failure 9 to state a claim. ECF No. 16-18. Both motions have been fully briefed and were submitted 10 without oral argument. ECF Nos. 24-29, 33-35, 38. 11 On May 27, the parties submitted a joint status report pursuant to Rule 26(f) and Local 12 Rule 240, noting Plaintiff’s position that a discovery schedule should be set and Defendants’ 13 position that discovery should be stayed. ECF No. 36. In light of the joint status report and 14 Defendant’s pending motions to dismiss, the District Judge declined to issue a scheduling order 15 that would have set discovery deadlines. ECF No. 37. 16 Defendant filed this motion to stay discovery on June 11, which the parties subsequently 17 briefed pursuant to a joint statement. ECF Nos. 39, 44. Although Plaintiff has not served 18 discovery requests on Defendants, Plaintiff has served subpoenas on Coinbase Global Inc. 19 (“Coinbase”) and Rusty’s RV Rentals LLC (“Rusty’s”). ECF Nos. 39-3, 39-4, 44 at 4. The 20 subpoena served on Coinbase seeks records for eight cryptocurrency addresses that Plaintiff 21 contends were “used by wallets” indirectly “connected” to Defendants. ECF No. 39-3 at 7, 10; 22 ECF No. 44 at 4. Coinbase paused production of responsive documents pending the outcome of 23 this motion. ECF No. 44 at 4. The subpoena served on Rusty’s seeks all financial records, 24 government agency filings, negotiable instruments, rental agreements, communications, 25 cryptocurrency-related documents, and records of investments by St. George since May 1, 2024. 26 ECF No. 39-4 at 7, 10-11. Rusty’s objects to the subpoena and has refused to produce any 27 information. ECF No. 44 at 3. 28 //// 1 II. LEGAL STANDARDS 2 A district court exercises “wide discretion in controlling discovery.” Little v. City of 3 Seattle,

(9th Cir. 1988). It has similarly broad discretion to stay proceedings as 4 an incident to its power to control its docket. See Clinton v. Jones,

(1997); see 5 also Lockyer v. Mirant Corp.,

, 1109 (9th Cir. 2005) (court’s power to stay 6 proceedings is incidental to power to control cases with economy for itself, counsel, and 7 litigants). The ordinary course of litigation is for discovery to proceed in the face of a pending 8 dispositive motion. Courts disfavor blanket stays of discovery because “delaying or prolonging 9 discovery can create unnecessary litigation expenses and case management problems.” Salazar v. 10 Honest Tea, Inc.,

, at *1 (E.D. Cal. Oct. 28, 2015) (citation omitted). On the 11 other hand, a stay of discovery pending the resolution a potentially dispositive motion may further 12 the goal of efficiency for the courts and the litigants. See, e.g., Little,

. 13 Courts in the Ninth Circuit typically rely heavily on two factors to determine if delaying 14 discovery is appropriate: (1) whether the pending motion is potentially dispositive of the case, or 15 at least would render unnecessary the discovery at issue; and (2) whether the pending motion can 16 be decided absent additional discovery. See Salazar,

, at *1. The first prong is 17 not satisfied if disposition of the motion would likely involve leave to amend. See, e.g., 18 Mlejnecky v. Olympus Imaging Am., Inc.,

, at *9 (E.D. Cal. Feb. 7, 2011) 19 (finding a pending motion to dismiss not dispositive of the case where the Magistrate Judge 20 anticipated that, even if the motion were granted, the District Judge would grant leave to amend). 21 “In applying the two-factor test, the court deciding the motion to stay must take a ‘preliminary 22 peek’ at the merits of the pending dispositive motion to assess whether a stay is warranted.” 23 Yamasaki v. Zicam LLC,

, at *1 (N.D. Cal. Aug. 19, 2021) (citation omitted). 24 Courts both within and beyond the Ninth Circuit also regularly apply additional factors in 25 deciding whether to stay discovery. These “Skellerup factors” include “[t]he type of motion and 26 whether it is a challenge as a matter of law or the sufficiency of the allegations; the nature and 27 complexity of the action; whether counterclaims and/or cross-claims have been interposed; 28 whether some or all of the defendants join in the request for a stay; the posture or stage of the 1 litigation; the expected extent of the discovery in light of the number of parties and complexity of 2 the issues in the case; and any other relevant circumstances.” Skellerup Industries Limited v. City 3 of Los Angeles,

(C.D. Cal. 1995) (citation and quotation omitted). In 4 evaluating all of the relevant factors, courts foreground the need to balance the downside of 5 delaying discovery against the possibility that the motion will be granted and eliminate the need 6 for discovery.

, at *1 (citations omitted). 7 III. ANALYSIS 8 Given that the parties have held their Rule 26(f) conference, ECF No. 36, discovery is 9 now authorized, absent a stay or protective order. See Fed. R. Civ. P. 26(d)(1). As explained 10 below, with the exception of jurisdictional discovery, the applicable factors as a whole weigh 11 against staying discovery. Jurisdictional discovery should be stayed at this point given that 12 Plaintiff specifically sought the opportunity to tailor any jurisdictional discovery request to an 13 adverse ruling on the motion to dismiss by St. George and Litz. However, having taken a 14 preliminary peek at the other aspects of the motions to dismiss, the undersigned believes those 15 motions are not likely to dispose of the entire case. Even if Defendants prevail on the current 16 motions, the Court is likely to grant Plaintiff leave to amend. Moreover, the motions are complex 17 and do not involve case-dispositive issues likely to be resolved as a matter of law. Nor is there 18 otherwise good cause to stay discovery.

19 A. PLAINTIFF ANTICIPATES TAILORING ANY REQUEST FOR JURISDICTIONAL DISCOVERY TO THE DISTRICT JUDGE’S RULING 20 21 Plaintiff requested jurisdictional discovery in opposition to the motion to dismiss by St. 22 George and Litz. ECF No. 26 at 18-19. However, Plaintiff noted that any “jurisdictional 23 discovery request would necessarily be tied to the scope and basis of any determination by this 24 Court that the jurisdictional showing set forth [in the opposition] and in the Complaint falls 25 short[.]”

at 1 n.1. Plaintiff accordingly requested that it be permitted to “submit a more 26 detailed jurisdictional discovery request” after the Court rules on the motions to dismiss.

at 19 27 & 1 n.1. By Plaintiff’s own account, then, jurisdictional discovery should await Judge Drozd’s 28 //// 1 ruling on personal jurisdiction. All discovery concerning personal jurisdiction will be stayed 2 absent further order of the Court. 3 The undersigned recognizes the possibility that certain merits discovery will be 4 intertwined with jurisdictional discovery.2 Such dual-purpose discovery may appropriately 5 proceed. However, any purely jurisdictional discovery will await Judge Drozd’s rulings and any 6 jurisdictional discovery request Plaintiff might then make. Disputes about whether any discovery 7 is dual purpose or purely jurisdictional may, after a meet and confer, be brought promptly before 8 the undersigned through an informal discovery conference (“IDC”).3

9 B. MERITS OF THE MOTIONS TO DISMISS AND THE IMPLICATIONS FOR DISCOVERY 10 11 In ruling on the motion to stay, the undersigned must take a “preliminary peak” at the 12 pending motions to dismiss in order to evaluate their scope and the likelihood that they will 13 resolve the entire case. See Mlejnecky,

, at *8. “The undersigned recognizes the 14 awkward nature of this review procedure here.”

The “responsibility” for “resolv[ing] 15 defendant’s motion to dismiss plaintiff’s First Amended Complaint belongs only to” Judge 16 Drozd, and Judge Drozd “may take a different view of the merits.”

Given that this is only a 17 preliminary peek, the analysis below will not be as detailed or complete as it would be if the 18 motions to dismiss were being fully adjudicated. With that caveat, the analysis proceeds. 19 The motions to dismiss collectively raise three types of arguments. Both motions argue 20 the FAC generally fails to sufficiently plead specific facts as to Defendants’ wrongdoing, 21 particularly under the heightened pleading standard for fraud. ECF No. 15 at 17-22, 28, 30-33; 22 ECF No. 16 at 26-31. Brewer also raises several arguments as to why specific claims fail as a 23 matter of law or fact. ECF No. 15 at 22-28, 32-33. Litz and St. George argue that the FAC does 24

25 2 As Plaintiff stated in its opposition: “Specific topics that may be appropriate for jurisdictional discovery include, but are not limited to: the alter ego relationships between Moving Defendants, 26 Vertex and FileTAO; Moving Defendants’ actual or constructive knowledge that Plaintiff’s Assignors, FileTAO participants, or Python-based Bittensor participants more generally were 27 located in California; and Defendant Litz’s involvement in and control over FileTAO.” ECF No. 26 at 19. 28 3 The IDC process is described in Magistrate Judge Riordan’s “Civil Standing Order.” 1 not plead sufficient facts to demonstrate that this Court can assert personal jurisdiction over them. 2 ECF No. 16 at 15-26. 3 That two motions to dismiss are pending in this action, and the motion for a stay hinges on 4 both, reflects the complexity of this case. See ECF No. 44 at 2. This action concerns three 5 Defendants, a Plaintiff representing thirteen alleged victims, and seven causes of action across 6 federal and state law. Aside from this complexity itself disfavoring a stay (see Skellerup, 163 7 F.R.D. at 601), Defendants do not articulate whether certain discovery should be precluded by the 8 prospect of success on particular aspects of their motions as opposed to others. At most, they 9 concede that the Court “could order limited jurisdictional discovery” given St. George’s and 10 Litz’s personal jurisdiction arguments “in the event the motion to stay is granted.” ECF No. 44 at 11 9 (quoting Spearman v. I Play, Inc.,

, at *2 (E.D. Cal. March 19, 2018)).4 12 Upon a preliminary peek at the motions to dismiss, the Court will only bar discovery if it 13 determines that the pleadings fail such that leave to amend would be futile. 14 1. Defendants’ Attack on the FAC’s Factual Allegations 15 Brewer argues in his motion to dismiss that the FAC fails to articulate specific and non- 16 conclusory allegations about the role each Defendant played in an alleged conspiracy to steal 17 TAO.5 ECF No. 15 at 18-19. He argues that the FAC mostly refers to the “Defendants” or 18 “attackers” as a group, yet fails to demonstrate an agreement between Defendants beyond their 19 professional relationship through Vertex. Id. at 19. Brewer reinforces this argument by asserting 20 that because all claims sound in fraud, a complaint must plead the circumstances constituting such 21 fraud “with particularity.” Id. at 18; Fed. R. Civ. P. 9(b). 22 If the FAC does not already plead such facts, it pleads sufficient facts to show that 23 Plaintiff could likely amend it to address any deficiencies. Although it often refers to “the 24 4 As noted in Section III.A, above, Plaintiff’s request in opposition to the motions to dismiss— 25 that any jurisdictional discovery be done only after resolution of the motion to dismiss—makes 26 jurisdictional discovery unwarranted at this point. 5 St. George and Litz also argue that the FAC fails to state a claim as to each of them under Rule 27 12(b)(6). ECF No. 16 at 27-32. St. George and Litz primarily reiterate Brewer’s arguments, including that legitimate business reasons underlie some of the factual allegations. ECF No. 16 at 28 28, 30. 1 attackers” as a single unit, it also includes certain facts about each Defendant’s alleged role in the 2 Bittensor Attack. St. George, as one of only six people with Opentensor’s API key, used it to 3 upload the Attack Software disguised as a legitimate Bittensor update. ECF No. 14 at ¶¶ 27, 48. 4 Brewer developed parts of the Bittensor Attack plan, from the initial virus to the concealment of 5 funds through Monero and exchanges, which Defendants would execute together. Id. at ¶¶ 39, 6 57. Litz furthered this effort by helping launder the stolen TAO, both by using Railgun and 7 linking his own Subnet Wallets to a Suspected Laundering Service. Id. at ¶¶ 40, 57, 76-77. 8 These defendant-specific allegations were made against the backdrop of numerous other facts 9 about the Bittensor Attack and its final result—the interception of wallet keys through the Attack 10 Software and the theft of cryptocurrency therein. Id. at ¶¶ 49-54. 11 Brewer counters that many of the allegations supporting the accusation that Defendants 12 orchestrated the Bittensor Attack are equally consistent with innocent activity. ECF No. 15 at 20. 13 He cites Twombly to assert that showing “parallel conduct” is insufficient to demonstrate any 14 agreement or conspiracy between Defendants. Id. (citing Bell Atlantic v. Twombly,

, 15 553-54 (2007)). While parallel conduct standing alone would be insufficient to plausibly allege 16 wrongful conduct, Plaintiff appears to allege more than merely parallel conduct. See supra, 17 Section I.A. “[W]hen the entire sequence of events in the complaint is considered in context, 18 what might otherwise appear to have been coincidental parallel conduct on its own becomes 19 ‘suggestive of illegal conduct’ and is thus sufficient to survive a motion to dismiss.” Soo Park v. 20 Thompson,

, 928–29 (9th Cir. 2017) (quoting Twombly,

n.8). 21 Moreover, pleadings need not refute other, potentially innocent explanations for alleged wrongful 22 acts to be deemed plausible at the motion to dismiss stage—otherwise the requirement that 23 reasonable inferences be drawn in a plaintiff’s favor would be a dead letter. See Boquist v. 24 Courtney,

(9th Cir. 2024) (reversing and remanding in part because of district 25 court’s failure to draw all reasonable inferences in the plaintiff’s favor). 26 Based on a preliminary peek, it is not clear that the FAC’s allegations are generally 27 deficient. But even if they are generally deficient, leave to amend would likely be granted to 28 allow Plaintiff to attempt to plead additional facts. 1 2. Brewer’s Challenges to Specific Claims 2 After general arguments regarding the sufficiency of the pleadings, Brewer raises 3 questions of both law and fact to challenge individual causes of action. Questions of law include 4 whether Bittensor Attack victims could assign their rights to sue under the CFAA and 5 Wiretapping Act (ECF No. 15 at 22-23, 27), to what extent an assignee can sue for punitive 6 damages under the California Penal Code (id. at 34), whether cryptocurrency like TAO is a 7 cognizable loss under the CFAA (id. at 23-25), whether the victims’ electronic wallets constituted 8 “protected computers” under the CFAA (id.at 26-27), whether the Attack Software constituted a 9 “device” under the Wiretapping Act (id. at 29), and whether the remedy of constructive trust can 10 provide basis for a separate cause of action (id. at 33). By Brewer’s own admission, some of 11 these issues have not been definitively settled in Defendants’ favor. See id. at 29. Even if Brewer 12 were to succeed on all of these purely legal arguments, the case would proceed because it is 13 premised on both diversity jurisdiction and federal question jurisdiction. ECF No. 14 at ¶¶ 16-17. 14 The remaining arguments concern the sufficiency of pleadings as to specific claims. As to 15 the claim for fraud, for example, Brewer argues that the FAC does not allege he made any 16 knowingly false representation with the intent to defraud, or that Plaintiff sustained damages for 17 reasonably relying on such representations. ECF No. 15 at 31 (citing Herrejon v. Ocwen Loan 18 Servicing, LLC,

(E.D. Cal. 2013)). The FAC alleges that the named 19 Defendants, as FileTAO operators, induced Bittensor users to download the Attack Software by 20 disguising it as a Bittensor update purportedly needed to run FileTAO. ECF No. 14 at ¶¶ 12-14, 21 42, 48-50, 85-86. This allowed Defendants to allegedly use the Attack Software to steal wallet 22 keys and subsequently drain these wallets of all TAO. Id. at ¶¶ 51-54. If this does not currently 23 satisfy the pleading requirements for fraud, it at least suggests Plaintiff could amend the pleadings 24 to adequately address any deficiencies as to Defendants’ mental states. 25 Brewer then argues that the conversion and unjust enrichment claims should be dismissed 26 because even after a forensic blockchain investigation, none of the stolen funds have been traced 27 to any named Defendant. ECF No. 15 at 31-32. He cites Oakdale Village Group v. Fong’s 28 holding that a plaintiff alleging conversion must “show an assumption of control or ownership 1 over the property, or that the alleged converter has applied the property to his own use.” Id. 2 (citing

, 543–44 (Cal. Ct. App. 1996)). The plaintiff in Oakdale had appealed 3 a final judgement in the defendant’s favor following a motion for a new trial.

543. Whether a complaint must plead knowledge of where a defendant has hidden stolen assets 5 to survive a motion to dismiss the claim is therefore unclear. In any case, as Plaintiff argues, the 6 allegation that the Attack Software gave Defendants the wallet keys needed to control the 7 victim’s TAO may constitute an “assumption of control.” ECF No. 24 at 29 (citing Shin v. ICON 8 Found.,

, at *9 n.3 (N.D. Cal. May 11, 2021)). 9 A preliminary peek at Brewer’s arguments concerning specific causes of actions does not 10 clearly show that those arguments are likely to succeed. Alternatively, it is not likely that leave to 11 amend them to cure any deficiencies would be futile. 12 3. Conclusion 13 A preliminary peek at the motions to dismiss does not suggest that the arguments therein, 14 individually or collectively, would be dispositive of this case without additional discovery. 15 “Generally, there must be no question in the court’s mind that the dispositive motion will prevail, 16 and, therefore, discovery is a waste of effort.” Flynn v. Nevada,

, 346 (D. Nev. 17 2024) (emphasis in original). The predominant two-factor test does not support granting a stay. 18 C. SKELLERUP FACTORS AND THE BURDEN OF DISCOVERY 19 The Skellerup factors also do not favor staying discovery.6 Several of these factors are 20 self-evident as applied to the relevant circumstances. As discussed above, the motions to dismiss 21 are based on both questions of law and of fact. See supra III.B.2. The case is complex insofar as 22 it involves three Defendants, a Plaintiff representing thirteen alleged victims, and seven causes of 23 action based in both federal and state law. See supra III.B. Both of these factors then weigh 24 against a stay. However, all three Defendants have moved for this stay, and none of them have

25 6 Again, those factors are: “The type of motion and whether it is a challenge as a matter of law or 26 the sufficiency of the allegations; the nature and complexity of the action; whether counterclaims and/or cross-claims have been interposed; whether some or all of the defendants join in the 27 request for a stay; the posture or stage of the litigation; the expected extent of the discovery in light of the number of parties and complexity of the issues in the case; and any other relevant 28 circumstances.”

. 1 filed counterclaims. Plaintiff also cites authority that when a case “is in its early phases and 2 progression has been typical,” as here, the procedural posture does not merit a stay. ECF No. 44 3 at 21 (citing Elliot v. Conagra Brands, Inc.,

, at *2 (E.D. Cal. Apr. 17, 2024)). 4 The most disputed issues are the anticipated extent of discovery and the prejudice that would 5 occur from staying it. 6 Defendants cite United States v. Dynamic Medical Systems, LLC and United States ex rel 7 Modglin v. DJO Global Inc. to argue that the interest in avoiding unnecessary discovery is 8 heightened when, as here, all claims sound in fraud and are subject to a heightened pleading 9 standard. See supra III.B.1; ECF No. 44 at 10 (citing

, at *5 (E.D. Cal. June 5, 10 2020);

, at *2-3 (C.D. Cal. Feb. 20, 2014)). Neither case squarely applies 11 here. Mogdlin concerned the specific context of False Claims Act (“FCA”) actions, which by 12 definition involve “insiders privy to a fraud on the government” who as “insiders should have 13 adequate knowledge of the wrongdoing at issue” to “be able to comply with Rule 9(b).” 2014

, at *2 (quoting Bly-Magee v. California,

, 1019 (9th Cir. 2001)). As 15 Modglin noted, under the FCA, “courts have repeatedly refused to allow qui tam relators to rely 16 on later discovery to comply with Rule 9(b)’s pleading requirements[.]” Id. (quoting United 17 States ex rel. Karvelas v. Melrose-Wakefield Hospital,

(1st Cir. 2004)). “For 18 these reasons, California district courts have found that it is proper in FCA cases where a motion 19 to dismiss for failure to plead fraud with particularity is pending to stay discovery until the court 20 has had the opportunity to decide whether the complaint satisfies the heightened pleading 21 requirements of Rule 9(b).”

The logic of Modglin, turning as it does on the special insider 22 knowledge qui tam relators are expected to have from the outset, does not extend to a case like 23 this where the alleged fraud involved labyrinthine software.7 24 Nor does Dynamic Medical Systems suggest a special rule regarding stays of discovery 25 whenever Rule 9(b) might apply. Rather, the judge in that case simply “decline[d] to potentially 26

27 7 Moreover, contrary to this case, the plaintiffs in Modglin did not “argue that defendants are not likely to succeed on their motion to dismiss because plaintiffs have pled their allegations with 28 sufficient specificity under Rule 9(b).”

, at *3. 1 weigh into the merits of the motions to dismiss that are ripe for adjudication and pending before 2 the District Judge assigned to this action[.]”

, at *2. To the extent that 3 Dynamic Medical Systems—a California False Claims Act case—relied on Modglin, id. at *5, it 4 would be distinguishable for the same reasons provided directly above. 5 Defendants then argue that because the District Judge vacated the scheduling conference 6 pending resolution of this motion, Plaintiff cannot be prejudiced in the absence of a scheduling 7 order with a discovery deadline. ECF No. 44 at 11 (citing ECF No. 37; Stavrianoudakis v. United 8 States Dep’t of Fish & Wildlife,

, at *3 (E.D. Cal. Dec. 20, 2019)). While this 9 is true, the court in Stavrianoudakis weighed this against the “unnecessary motion practice, 10 litigation costs, and a waste of judicial resources” that would occur without a stay.

9667685, at *3. The question becomes what discovery Plaintiff seeks to propound before the 12 District Judge may rule on the motions to dismiss. 13 Defendant argues that the discovery propounded on third-parties thus far demonstrates 14 that the anticipated discovery would be burdensome and invasive. ECF No. 44 at 12. After St. 15 George disclosed investments in real estate property used by an RV business, Plaintiff 16 subpoenaed Rusty’s, an RV business owned by Brewer’s father.

(citing ECF Nos. 16-1 at ¶ 4, 17 39-4). This subpoena seeks a variety of records since May 2024, despite Rusty’s apparently 18 having no direct connection to this case. ECF No. 39-4 at 7, 10-11; ECF No. 44 at 12. Similarly, 19 Plaintiff has subpoenaed Coinbase for information about eight cryptocurrency addresses, despite 20 Brewer stipulating that one of them is his. ECF No. 39-3; ECF No. 44 at 13. Defendants 21 categorize these subpoenas as “egregious example[s] of a fishing expedition and harassment”. 22 ECF No. 44 at 14. They therefore request, at minimum, that discovery be limited to accounts, 23 addresses, or businesses with no connection to currently named Defendants.

24 Plaintiff argues that Defendants do not have “standing to quash a subpoena served upon a 25 third party.” ECF No. 44 at 15 (quoting California Sportfishing Prot. All. v. Chico Scrap Metal, 26 Inc.,

(E.D. Cal. 2014)). While only the responding third-party can move to 27 quash or for a protective order, this does not mean that their burden is irrelevant. While the 28 undersigned has some concerns, based on the current record, about the subpoena to Rusty’s, those 1 concerns are not sufficient to show that discovery generally should not proceed. 2 Plaintiff also argues that courts do not recognize the costs of responding to discovery as a 3 “sufficiently particularized or unique harm to support a discovery stay where it would not 4 otherwise be warranted.” ECF No. 44 at 21 (Elliot,

, at *2). Defendants, 5 however, do not just assert financial costs. They emphasize the pattern of fishing, purportedly 6 harassment, that Plaintiff engages in through third-party subpoenas. ECF No. 44 at 14. This may 7 constitute a more particularized form of harm than comprehensive discovery requests otherwise 8 entail. 9 Defendants’ argument ultimately fails, however, because of the context in which Plaintiff 10 propounded subpoenas for the information at issue. Brewer’s motion to dismiss alleges that the 11 FAC’s failure to articulate what Defendants did with the stolen TAO is fatal to some of the 12 claims. See supra III.B.2; ECF No. 15 at 31-32. Discovery regarding any businesses with a 13 connection to named Defendants is therefore relevant, at a minimum for determining whether any 14 investments are tied to the missing cryptocurrency. Defendants’ alternate proposal, allowing 15 discovery into any company with no connection to them whatsoever, is unhelpful to such an 16 inquiry. 17 Defendants have failed to demonstrate that the lack of a stay would sufficiently prejudice 18 themselves or related entities. At the same time, the granting of a stay can be expected to delay 19 the ultimate resolution of this case. The Skellerup Factors do not justify staying discovery. 20 IV. CONCLUSION 21 For the foregoing reasons, IT IS HEREBY ORDERED THAT: 22 1. Defendants’ Motion to Stay Discovery in its entirety, or alternatively to stay any 23 discovery not pertaining to the identification of Doe Defendants (ECF No. 39) is 24 DENIED, except as to jurisdictional discovery. 25 2. All third-parties who have withheld further responses to pending discovery on the 26 outcome of Defendants’ Motion should resume production, or alternatively to move 27 //// 28 //// 1 3. to quash or for a protective order based on the merits of the specific discovery 2 requests at issue. 3 IT IS SO ORDERED. 4 | DATED: August 18, 2025 Lewd 6 SEAN C. RIORDAN 7 UNITED STATES MAGISTRATE JUDGE 8 9 10 1] 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15