Crypto Caselaw Minute #58–10/18/19
This week’s Crypto Caselaw has yet another mining related lawsuit, we got some SIM-swapping shenanigans, and a bitcoin IRA litigation slugfest that’s dismissed for lack of good old-fashioned personal jurisdiction.
Disclaimer: Crypto Caselaw Minute is provided for educational purposes only by Nelson Rosario and Stephen Palley. These summaries are not legal advice. They 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”. Our Image credit: https://pixabay.com/photos/coal-black-mineral-underground-1626368/(Pixabay license).
Maranda v. Hash Deploy Inc. et al., Case №5:19-cv-00528 (M.D. Fla. filed October 16, 2019)[NMR]
This case is a breach of contract and fraud cause over a dispute involving the delivery of crypto mining equipment. How many of these cases have we seen so far? Half a dozen? It’s like half a dozen right? Stepping back, just how many crypto mining equipment companies are there in the US? I guess, a lot? Given all the lawsuits. Surely not every single one has been sued since the bust post-2017. Anyways, this is a newly filed lawsuit in the Middle District of Florida (that’s horse country if you didn’t know) concerning a mining equipment kerfuffle where the defendants allegedly “failed to deliver, computer equipment costing $220,000.00.” Let’s dig in.
Plaintiff Michael Maranda allegedly entered into an agreement with Hash Deploy Inc., one of the defendants, to buy 100 S17 Antminers. This agreement was allegedly signed on May 11, 2018 (this may be a typo and in fact the year may be 2019, which would make a bit more sense), and the plaintiff transferred $220,000 worth of bitcoin to the defendant. As the complaint states “pursuant to the Contract, Hash Deploy, Inc. was to deliver, and plaintiff was to receive said 100 S 17 Antminers within 15 days of June 5, 2019 or be entitled to a full refund.” Did the Antminers arrive within 15 days? Allegedly not. Did the plaintiff receive a full refund per the contract? Allegedly not. So, what’s an aggrieved purchaser to do? Well, you know, sometimes you gotta sue. What is the plaintiff suing for?
There are seven counts in the lawsuit: breach of contract, fraud, conversion (stealing), and then four alleged violations of the Uniform Commercial Code, aka the UCC. The UCC is an attempt to harmonize, ie standardize, the law related to buying and selling things around the country. Here the plaintiff is claiming that the defendant failed to deliver the goods, they are entitled to damages to cover the purchase of new Antminers, they are entitled to incidental and consequential damages, and they believe they are entitle to specific performance of the contract.
This is a pretty straightforward complaint, and a pretty straightforward contract dispute. There are a couple of concepts worth highlighting and a question posed by the complaint. If you enter into an agreement with someone and then renege on the agreement they may be entitled to the difference in the agreed upon purchase price with you and what it would cost them to procure substitute goods. This is called cover, and the lawsuit has a count for that.
Another idea is the idea of specific performance. Specific performance means that you want to get the Court to order the other side to fulfill their obligations of the contract. Specific performance is often required in situations where the thing you contracted for is rarer. It’s not clear that that is the situation here. Also, its not clear why the plaintiff didn’t ask for the bitcoin back. I mean, why not?
Anywho, this is a fairly standard contract dispute. It’ll be interesting to see how the defendants explain away the fact that the miners aren’t allegedly there. All told the plaintiff is seeking $580,000 in damages after you total everything up. That ain’t chump change.
Shapiro v. AT & T Mobility, LLC, Case №2:19-cv-8972 (C.D. Cal. filed October 17, 2019)[NMR]
According to statistics that the CCM just looked up over one hundred and eleventy percent of crypto currency hodlers have been SIM-swapped at least once in their cryptolife. That may be a slight exaggeration, but also, it’s gotta be close, right? As one Twitter user said recently, and I’m paraphrasing, “every prominent person in crypto will be SIM-swapped at some point.” This particular case doesn’t necessarily involve a prominent crypto twitterzen, but it doe involve the alleged theft of $1.8 mil of money including crypto. Ouch.
The plaintiff is Seth Shapiro a resident of California. Mr. Shapiro is apparently a “a two-time Emmy Award-winning media and technology expert, author, and adjunct professor at the University of Southern California School of Cinematic Arts.” He also was at the relevant times for the lawsuit a subscriber of AT&T. In case you don’t know, AT&T “is the second largest wireless carrier in the United States, with more than 153 million subscribers, earning $71 billion in total operating revenues in 2017 and $71 billion in 2018.” The gist is that Shapiro is alleging that AT&T failed to protect his account from getting SIM-swapped resulting in his loss of crypto. What happened?
According to the complaint:
On at least four occasions between May 16, 2018 and May 18, 2019, AT&T employees obtained unauthorized access to Mr. Shapiro’s AT&T wireless account, viewed his confidential and proprietary personal information, and transferred control over Mr. Shapiro’s AT&T wireless number from Mr. Shapiro’s phone to a phone controlled by third-party hackers in exchange for money.
Then, as if that wasn’t bad enough, the end result was:
The hackers then utilized their control over Mr. Shapiro’s AT&T wireless number — including control secured through cooperation with AT&T employees — to access his personal and digital finance accounts and steal more than $1.8 million from Mr. Shapiro.
That’s not great. The scheme involved AT&T employees working on the inside with outside hackers. Do you think there are chats? Hahaha, of course there are chats.
At the end of the chat, a group member brags that they “made 1.3 [million]” and they begin plotting about how to route the stolen cryptocurrency through various accounts and currencies in order to cover their trail. They also brag about plans to “buy some Gucci” or a “dream car” with the money they stole from Mr. Shapiro.
Buy some Gucci? Really? I mean, fine. Why not something exotic if you’re going to do the crimes? Apparently, Mr. Shapiro was in fact SIM-swapped two times, and all of his personal information was taken and access to other accounts such as Google, and Evernote. Furthermore, Mr. Shapiro’s family was impacted, and he was threatened. It was really quite awful.
Each time AT&T allegedly said they followed proper procedures and alerted necessary authorities, but as the complaint states “Mr. Shapiro’s trust in AT&T was misplaced.” Additionally, some of the crypto that was stolen was for a new business venture that Shapiro was pursuing. What is Shapiro actually suing for, like, the cause of action?
One header in the lawsuit summarizes the nature of the action “AT&T’s Repeated Failures to Protect Mr. Shapiro’s Account from Unauthorized Access Are a Violation of Federal Law.” The argument goes that AT&T is fully aware that the information they hold in trust for their subscribers is highly sensitive, and extremely valuable. Mr. Shapiro is arguing that AT&T knows this and has failed in a variety of ways to take the necessary steps to protect their subscriber’s information.
This seems like a suit between two highly motivated parties. Mr. Shapiro has apparently been through the ringer. AT&T definitely doesn’t want to lose this thing given all the swappings of SIMs going on these days. This is definitely one to watch.
My Ret. Account Servs. v. Alternative Ira Servs., 2019 U.S. Dist. LEXIS 180327 (W.D. Kentucky, NO. 5:19-CV-122-TBR, 10/18/2019) [SDP]
For all of you crypto civil procedure mavens, this opinion offers a nice primer on personal jurisdiction and happens to involve an underlying dispute involving cryptocurrencies held by a trust custodian for individual retirement accounts (“IRAs”.)
The plaintiff Kingdom Services owns a company called Kingdom Trust, a South Dakota company with its principal place of busiess in Kentucky which is the trust custodian you read about just words away in the preceding paragraph. The defendant is a Delaware LLC with its principal place of business in California. It does business under a bunch of different names including Bitcoin IRA. Bitgo Inc., also a defendant, is a delaware corporation and it has an affiliate named BitGo trust which is a South Dakota corporation.
Back in early 2018, plaintiff entered into a contract with Bitcoin IRA for use of a technology platform so customers could buy and sell crypto in their IRA. Things went south and as often ensues when things go south there was a lawsuit. Here’s the gist:
Before transferring its clients’ assets, Kingdom Trust claims it was required by federal and state law to perform due diligence on BitGo Trust and its relationships with service providers. In response to Kingdom Trust’s delay in executing the transfers, Defendant Concha sent Kingdom Trust a cease and desist letter demanding Kingdom Trust execute the transfers immediately. Kingdom Trust also claims that BitGo Trust encouraged clients to contact South Dakota banking regulators and complain about the delay. According to the Complaint, Defendants continued to contact Kingdom Trust clients and encourage them to transfer their assets to BitGo Trust until the current action was filed in August 2019.
(The lawsuit was also covered here, if you’re interested in further reading about the allegations.)
Anyway, these allegation are all well and good but as regular readers of CCM will recall, a Court can’t entertain a lawsuit when it doesn’t have jurisdiction over the parties. And therein, frens, lies the rub. No personal jurisdiction.
The defendants said they had nothing to do with Kentucky, which is where this lawsuit was filed and so moved to dismiss on those grounds. Most states (it may be all, and probably is, but I haven’t done a survey) have statutes that cover personal jurisdiction over non-resident defendants. They are called “long arm” statutes. A federal court in this kind of case — diversity jurisdiction, to be technical — uses the long arm statute of the state where they are located.
That’s what this court did, holding that there just wasn’t enough connection with Kentucky for the lawsuit to be adjudicated there. For example:
- No torts were allegedly commited by defendants in Kentucky Defendants didn’t regularly do business in Kentucky or solicit business there
- There wasn’t an allegation or evidence that Defendants “derive substantial revenue from goods used or consumed or services rendered” in Kentucky.
- The fact that defendants communicated with plaintiffs who were in Kentucky via letters, phone calls and emails wasn’t enough either
Bottom line, this bitcoin IRA lawsuit didn’t have enough with Kentucky to be heard in a Kentucky federal court. Result = case dismissed.
