United Am. Corp. v. Bitmain, Inc.

530 F.Supp.3d 1241

UNITED AMERICAN CORPORATION, Plaintiff,

v.BITMAIN, INC., Roger Ver, Bitmain Technologies Ltd., Jihan Wu, Payward Ventures, Inc. d/b/a Kraken, Jesse Powell, Shammah Chancellor and Jason Cox, Defendants.

CASE NO. 18-cv-25106-WILLIAMS/MCALILEY

United States District Court, S.D. Florida.

Signed March 31, 2021

Joanne Gelfand, Lorayne Perez, Michael O. Mena, Brian Paul Miller, Akerman LLP, Miami, FL, for Plaintiff.

Christopher R.J. Pace, Marc Weinroth, Jones Day, Miami, FL, Julie M. McEvoy, Pro Hac Vice, Jones Day, Washington, DC, Mark W. Rasmussen, Pro Hac Vice, Thomas D. York, Jones Day, Dallas, TX, for Defendant Bitmain, Inc.

Melissa Cade Pallett-Vasquez, Bilzin Sumberg Baena Price & Axelrod, Miami, FL, for Defendant Roger Ver.

Christopher R.J. Pace, Jones Day, Miami, FL, for Defendants Bitmain Technologies Ltd., Jihan Wu.

Andrew C. Lourie, Kobre & Kim LLP, New York, NY, Christopher R.J. Pace, Jones Day, Miami, FL, Brian E. Klein, Pro Hac Vice, Donald Pepperman, Pro Hac Vice, Baker Marquart LLP, for Defendants Payward Ventures, Inc., Jesse Powell.

Melissa Cade Pallett-Vasquez, Bilzin Sumberg Baena Price & Axelrod, Christopher R.J. Pace, Jones Day, Miami, FL, Brian P. Quinn, Pro Hac Vice, Katrina Robson, Pro Hac Vice, Patrick J. Jones, Pro Hac Vice, Sergei Zaslavsky, Zhao Liu, Pro Hac Vice, Ian Simmons, Pro Hac Vice, O'Melveny & Myers LLP, Washington, DC, for Defendant Shammah Chancellor.

Melissa Cade Pallett-Vasquez, Bilzin Sumberg Baena Price & Axelrod, Christopher R.J. Pace, Jones Day, Miami, FL, Patrick J. Jones, Pro Hac Vice, O'Melveny & Myers LLP, Washington, DC, for Defendant Jason Cox.

ORDER GRANTING DEFENDANTS’ JOINT MOTION TO DISMISS FIRST AMENDED COMPLAINT

CHRIS McALILEY, UNITED STATES MAGISTRATE JUDGE

The Court has before it three motions: (1) Defendants Bitmain, Inc., Roger Ver ("Ver"), Bitmain Technologies Ltd. ("Bitmain Technologies"), Jihan Wu ("Wu"), Payward Ventures, Inc. d/b/a Kraken ("Kraken"), Jesse Powell ("Powell"), Shammah Chancellor ("Chancellor") and Jason Cox's ("Cox") (collectively, the "Defendants") Joint Motion to Dismiss First Amended Complaint Under Federal Rule of Civil Procedure 12(b)(6) (the "Joint Motion to Dismiss") (ECF No. 144), and Kraken and Powell's Standalone Brief in Support of Defendants’ Joint Motion to Dismiss the Amended Complaint (ECF No. 145); (2) Bitmain Technologies and Wu's Motion to Dismiss the Amended Complaint Under Federal Rule of Civil Procedure 12(b)(2) (ECF No. 142); and (3) Plaintiff United American Corporation's ("UAC") Motion for Leave to Conduct Jurisdictional Discovery (ECF No. 149). The motions are fully briefed. (ECF Nos. 147-148, 151-153).

The parties consented to my presiding over the pending motions, and the Honorable Kathleen M. Williams referred those motions to me for final resolution. (ECF Nos. 154-55). For the reasons set forth below, the Court grants Defendants’ Joint Motion to Dismiss (ECF No. 144) and dismisses the First Amended Complaint (ECF No. 138) with prejudice. The Court also denies as moot Bitmain Technologies and Wu's Motion to Dismiss the Amended Complaint Under Federal Rule of Civil Procedure 12(b)(2) (ECF No. 142) and UAC's Motion for Leave to Conduct Jurisdictional Discovery (ECF No. 149).

I. Background

A. Procedural History

UAC filed its first complaint against Defendants in December 2018. (ECF No. 1). The motions now before the Court are the second round of motions that Defendants first filed in 2019.¹ That is, in response to the first complaint, all Defendants filed motions to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and Bitmain Technologies and Wu also sought dismissal under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction; in turn UAC sought leave to conduct jurisdictional discovery. (ECF Nos. 41-43, 56, 98-99, 114, 116, 121). The presiding District Court Judge, the Honorable Kathleen M. Williams, referred those motions to me for a Report and Recommendation. (ECF No. 46).

In January 2020, I heard lengthy oral argument on all motions. (ECF No. 136). At the conclusion of that hearing I identified a number of ways in which the complaint was insufficiently plead, and I advised the parties that I believed the Court should dismiss the complaint with leave for UAC to file an amended complaint, and that the Court should deny, without prejudice, UAC's motion to conduct jurisdictional discovery. (Id. at 96, 114-117, 147). At that oral argument the Court and counsel had the opportunity to discuss UAC's allegations and the applicable law in detail, and I expressed my view that UAC should reasonably expect to have one more opportunity to attempt to state its claims, in an amended complaint. If the amended complaint fell short of the mark, then dismissal would likely be with prejudice. (Id. at 152-53). I advised the parties that with their consent to my presiding over the motions, I would rely on the comments I made at the oral argument about why I thought the complaint failed to state a claim, and I would issue a brief order of dismissal. (Id. at 117-23, 146-55).

With this knowledge, the parties consented to my presiding over the motions about which I had just heard argument, (ECF No. 133), and Judge Williams referred the motions to me for final resolution. (ECF No. 134). I then granted Defendants’ motions to dismiss, denied without prejudice UAC's motion for leave to conduct jurisdictional discovery, dismissed the complaint without prejudice and granted UAC leave to amend the complaint. (ECF No. 135).

UAC thereafter filed its two-count First Amended Complaint (the "Complaint"). (FAC, ECF No. 138).² It seeks restitution, compensatory damages and/or disgorgement, and injunctive relief, for Defendants’ alleged per se and rule of reason antitrust violations of § 1 of the Sherman Act and § 4 of the Clayton Act. (FAC at 30).

Defendants filed motions to dismiss and UAC filed a motion for leave to conduct jurisdictional discovery, which are now before the Court. (ECF Nos. 142, 144, 149). In September 2020, I again heard lengthy oral argument. (ECF No. 164).

B. Facts Alleged in the Complaint

The Court sets forth here UAC's allegations that are pertinent to Defendants’ Joint Motion to Dismiss (ECF No. 144). The Court assumes, as it must at this stage of the proceedings, that UAC's factual allegations are true, and it casts those facts in the light most favorable to UAC. Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A. , 711 F.2d 989, 994-95 (11th Cir. 1983) (citations omitted).

1. Cryptocurrencies and mining

Cryptocurrency is a form of digital currency that trades in currency markets. (FAC ¶¶ 22-23). The Satoshi Nakamoto whitepaper (the "Whitepaper"), published in October 2008, launched the idea of this "peer-to-peer" version of electronic cash that allows online payments from one party to another, independent of any financial institution. (Id. ¶ 27).³ The Whitepaper coined the term "Bitcoin", and today Bitcoin and Bitcoin Cash are popular forms of cryptocurrency. (Id. ¶¶ 22, 27).⁴

Cryptocurrencies are a "permissionless" system that rely on a network of decentralized encrypted public ledgers that document all digital transactions, known as a "blockchain". (Id. ¶¶ 28-29). The blockchain is a series of blocks, which are units of accounting that record new transactions in cryptocurrency. (Id. ¶ 42). Confidence and trust in the accuracy of the transactions in the blockchain is possible because the decentralized ledgers are identical and continuously updated and compared. (Id. ¶ 28). The system has mechanisms that allow for consensus on the validity of the blockchain. (Id. ¶ 29). One is "Proof-of-Work", which is designed to eliminate the insertion of fraudulent transactions in the blockchain. (Id. ). Also, the "main chain" (normally, the longest chain) at any given time, is whichever valid chain of blocks has the most cumulative "Proofs-of-Work" associated with it. (Id. ). A consensus being reached on the longest blockchain is essential to the integrity of the network. (Id. ¶ 89).

New cryptocurrency is created through a process called "mining". (Id. ¶ 24). Consumers – that is, individuals or institutions that operate servers – compete to "mine" virtual currencies by using computing power that solves complex math puzzles. (Id. ). The computer servers that first solve the puzzles are rewarded with new cryptocurrency, and the solutions to those puzzles are used to encrypt and secure the currency. (Id. ). The currency is then stored in a digital wallet associated with the computing device that solved the puzzle. (Id. ¶ 25).

The mining servers, which are called "nodes" (id. ¶ 24), consume a lot of energy, and electricity is the largest operating cost of mining. (Id. ¶ 31). To be profitable, miners must generate more cryptocurrency than the cost of electricity needed to mine. (Id. ). As competition to mine cryptocurrency has increased, so have costs, and the ability to obtain cryptocurrency has become more difficult. (Id. ¶¶ 26, 31). Those who mine cryptocurrency may create a "mining pool" by pooling their resources to share processing power over a network and share the reward. (Id. ¶ 30).

2. Bitcoin and Bitcoin Cash

As noted, Bitcoin and Bitcoin Cash are among the existing forms of cryptocurrency. (Id. ¶¶ 22, 33). Cryptocurrencies have distinctive characteristics to include the size of the blocks in the blockchain, the software design of the cryptocurrency and the currency's usefulness to store value or conduct day-to-day transactions. (Id. ¶ 33).

The original Bitcoin cryptocurrency is now known as Bitcoin Core (or "BTC"). (Id. ¶ 42). Bitcoin Cash (or "BCH") emerged from it on August 1, 2017, as a result of a "hard fork". (Id. ). A hard fork refers to a change to the protocol of a blockchain network whereby nodes that mine the newest version of the blockchain follow a new rules set, while nodes that mine the older version continue to follow the prior...