Gordon et al v. Dailey et al

Filing 113

OPINION FILED. Signed by Judge Joseph H. Rodriguez on 3/30/17. (js)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
BRANDON GORDON, et al.,

:
:

Plaintiffs,
v.

Hon. Joseph H. Rodriguez
Civil Action No. 14-7495

:
OPINION

ZACHARY DAILEY and LAB RAT
DATA PROCESSING, LLC.,

:

Defendants.

:

This matter is before the Court on Plaintiffs’ Motion to Amend and for leave to
File a Second Amended Complaint [Dkt. No. 104]. Plaintiffs’ motion was filed in
response to the Court’s June 21, 2016 Order on Defendants’ Motion to Dismiss in which
the Court dismissed the motion without prejudice and ordered Plaintiffs to show cause
why the case should not be dismissed for want of subject matter jurisdiction. See Dkt
Nos. 98, 99. Plaintiffs submit a proposed Second Amended Complaint which addresses
some of the Court’s concerns related to the nature of the property at issue: Bitcoins.
In an attempt to cure some of the inadequacies noted by the Court as to the First
Amended Complaint, Plaintiffs invoke both federal question jurisdiction and diversity
jurisdiction. With respect to federal question jurisdiction, Plaintiffs argue that although
the LRM Bonds at issue are not bonds in the traditional sense, they are investment
contracts and therefore meet the definition of a security pursuant to the federal
securities laws. Alternatively, Plaintiffs argue that diversity of citizenship jurisdiction
exists because the parties are diverse and the amount in controversy exceeds the
jurisdictional threshold. In order to demonstrate that the damages exceed $75,000.00,
Plaintiffs claim that they: 1) gathered information related to each investment in the
LRM Bonds, 2) set forth all of the re-sales of the LRM bonds, 3) described the dividends
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generated by the LRM Bonds, 4) detailed historical and current exchange rates for
bitcoins in U.S. Dollars, and 5) calculated the current value of the Bitcoin investments of
each of the ten Plaintiffs.
Here, the Court addresses whether the proposed Second Amended Complaint
sufficiently pleads federal subject matter jurisdiction. The Court finds that diversity
jurisdiction is present and, therefore, leave to amend will be granted because such an
amendment is not futile.1
I.

Standard on Motion to Amend

Federal Rule of Civil Procedure 15 (“Rule 15") encourages and provides for a
liberal policy for amending pleadings. Under Rule 15(a), leave to amend pleadings
“shall be freely given when justice so requires.” In Froman v. Davis, the Supreme court
articulated the liberal policy of allowing amendments underlying Rule 15(a) as follows:
If the underlying facts or circumstances relied upon by a plaintiff may be a
proper subject of relief, he ought to be afforded an opportunity to test his
claim on the merits. In the absence of any apparent or undeclared
reasons–such as undue delay, bad faith or dilatory motive on the part of
the movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by virtue of
allowance of the amendment, futility of amendment, etc.–the leave sought
should, as the rules require, be “freely given.”

372 U.S. 178, 182 (1962); see also Shane v. Fauver, 213 F.3d 113, 115 (3d Cir. 2000). The
Third Circuit has elaborated on the proper analysis to apply:
The trial court’s discretion under Rule 15, however, must be tempered by
considerations of prejudice to the non-moving party, for undue prejudice
is the “touchstone for the denial of leave to amend.” . . . In the absence of

1
 Because the proposed Second Amended Complaint satisfies both the diversity and monetary
requirements of 28 U.S.C. § 1332, the Court will not address Plaintiffs’ arguments with respect to 28
U.S.C. §§ 1331.

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substantial or undue prejudice, denial must be grounded in bad faith or
dilatory motives, truly undue or unexplained delay, repeated failure to
cure deficiency by amendments previously allowed or futility of
amendment.
Heyl & Patterson Int’l, Inc. v. F.D. Rich Housing of the Virgin Islands, 663 F.2d 419, 425
(3d Cir. 1981) (citing Cornell & Co. v. Occupational Safety and Health Review Comm’n,
573 F.2d 820, 823 (3d Cir. 1978); see also Bechtel v. Robinson, 886 F.2d 644, 652 (3d.
Cir. 1989).
Although courts place a heavy burden on opponents of motions to amend, it is
well established that the futility of amendment is one of the factors that may be
considered by the Court in denying a motion to amend. Froman, 371 U.S. at 182; see
also Fed. Deposit Ins. Corp. v. Bathgate, 27 F.3d 850, 874 (3d Cir. 1994); Averbach v.
Rival Mfg. Co., 879 F.2d 1196, 1203 (3d Cir. 1989). “‘Futility’ means that the complaint,
as amended, would fail to state a claim upon which relief could be granted.” Shane, 213
F.3d at 115. In assessing futility, a district court must apply the same standard of legal
sufficiency that applies under Fed. R. Civ. P. 12(b)(6). Id. (citing 3 Moore’s Federal
Practice, ¶ 15.15[3], at 15-47 to -48 (3d ed. 2000)).2 Thus, if the proposed amendment
“is frivolous or advances a claim or defense that is legally insufficient on its face, the
court may deny leave to amend. If a proposed amendment is not clearly futile, then
denial of leave to amend is improper.” Wright, Miller & Kane, Federal Practice and
Procedure § 1487 at 637-642 (2d ed. 1990) (footnote omitted).3 Finally, the Third

2In

addition, the court is “not permitted to go beyond the facts alleged in the Complaint and the
documents on which the claims made therein were based.” In re Burlington Coat Factory Sec. Litig., 114
F.3d 1410, 1425 (3d Cir. 1997).
3To

demonstrate that a claim is “legally insufficient on its face,” and that it could not withstand a
motion to dismiss, the opposing party must be able to demonstrate that “it appears beyond doubt that the

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Circuit has held that an amendment is futile when the claims asserted by the plaintiffs
are time-barred under the state of limitations. In re NAHC, Inc., Sec. Litig., 306 F.3d
1314, 1332 (3d Cir. 2002).
II.

Analysis

The diversity statute provides, in relevant part, “[t]he district court shall have
original jurisdiction of all civil actions where the matter in controversy exceeds the sum
or value of $75,000, exclusive of interest and costs.”4 In examining the First Amended
Complaint on the motion to dismiss, the Court concluded that it had no way of
determining whether the matter in controversy exceeds $75,000 because the First
Amended Complaint did not allege a dollar value associated with a Bitcoin at any given
time, much less during the relevant time period(s). See June 21, 2016 Opinion and
Order [Dkt. Nos. 98, 99]. In addition, the Court was troubled by the lack of information
related to the nature of Bitcoins and how they function, the number of Bitcoins each
Plaintiff paid for the bonds and whether the Defendants ever paid any Plaintiff any
weekly “dividends.”
The proposed Second Amended Complaint addresses these concerns. In addition,
proposed Second Amended Complaint includes an explanation of the nature of Bitcoins
and how they function. See Proposed Sec. Amend. Comp. ¶¶ 24-31. Plaintiffs also set
forth a calculation method and schedule of bitcoin purchases by each Plaintiff which
includes a conversion to value in United States Dollars. Id., ¶¶ 125-126; ¶176 (a)-(j).

[party] can prove no set of facts in support of [the] claim which would entitle [the party] to relief.”
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
4 Like the First Amended Complaint, the proposed Second Amended Complaint sufficiently alleges
complete diversity of citizenship; Defendants are alleged to be New Jersey citizens (Sec Amend. Compl. ¶¶
14-15), and none of the Plaintiffs are alleged to be New Jersey citizens (Sec. Amend. Compl. ¶¶ 2-13).

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Plaintiff

Net Bitcoin Investment Bonds

Value in U.S. Dollars5

Gordon

214.18781051

$142,400.62

Green

290.84851557

$193,367.73

Vondrak

120.27261

$79,962.04

Lobb

105.64005944

$70,233.74

Piper

5.82361022

$3,871.77

Galido

82.33777013

$54,741.44

Boehler

64.53032929

$42,902.34

Fisher-Levine

207.3906097

$137,881.57

Flachsbart

14.02584615

$9,324.94

Henderson

859.7813919

$571,617.06

Id.
Thus, the Plaintiffs sufficiently plead diversity of citizenship jurisdiction. attach a
detailed chart to the proposed Second Amended Complaint that sets forth losses for
some of the Plaintiffs that exceed of seventy- five thousand dollars. See Exxon Mobil
Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 559, 125 S. Ct. 2611, 2620–21, 162 L. Ed.
2d 502 (2005) (“When the well-pleaded complaint contains at least one claim that
satisfies the amount-in-controversy requirement, and there are no other relevant
jurisdictional defects, the district court, beyond all question, has original jurisdiction
over that claim.”).

 There is an accepted method of calculating the exchange rate of Bitcoin to U.S. dollars: multiply the net
number of Bitcoin by the current exchange rate in U.S. Dollars. See http://www.coindesk.com/price. At
the time the Motion to Amend was filed, as of July 13, 2016 the exchange rate equaled $664.84. the above
chart reflects that calculation as plead in the proposed Second Amended Complaint. However, today,
March 30, 2017, the exchange rate is $1047.89. See http://www.coindesk.com/price. Under either
calculation, the proposed Second Amended Complaint satisfies the jurisdictional amount in controversy.
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5 

In light of the allegations set forth in the chart and the additional details provided
in the proposed Second Amended Complaint, the Court is satisfied that it has diversity
of citizenship subject matter jurisdiction and the amendment is not futile. The Court
need not address whether subject matter jurisdiction is present. Plaintiffs motion to
amend is granted.
III.

Conclusion

For the reasons stated above, the Motion to Amend is granted. An appropriate
Order shall issue.

Dated: March 30, 2017
_s/ Joseph H. Rodriguez__________
Hon. Joseph H. Rodriguez,
UNITED STATES DISTRICT JUDGE

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