Serenity Alpha, LLC et al v. Northway Mining, LLC et al

Filing 156

MEMORANDUM-DECISION & ORDER that Plaintiffs' motion for contempt is DENIED; Plaintiffs' motion for prejudgment attachment is DENIED; Plaintiffs' motion for attorney's fees is DENIED; and Plaintiffs' motion for disbursement of funds is DENIED. The Clerk of the Court is directed to terminate the pending motions. Signed by Judge David N. Hurd on 3/31/2021. (see)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
-------------------------------SERENITY ALPHA, LLC,
A Nevada Corporation,
MINEDMAP, INC., a Nevada
limited liability, and 9384-2557
QUEBEC, INC., A Canadian
corporation,
Plaintiffs,
-vNORTHWAY MINING, LLC,
MICHAEL MARANDA,
MINING POWER GROUP,
INC., HUDSON DATA
CENTER, INC., DROR SVORAI,
MICHAEL CARTER, an individual,
COINMINT, LLC, MICHAEL
MARANDA LLC, PORTER KING
HILL CONTRACTING LLC,
ANTHONY PORTER, LORI S
THOMPSON-MARANDA, LORI
S. THOMSPON-MARANDA LCSW,
PLLC, 38 Oaklawn Avenue,
Farmingville, NY 11738,
631-655-8795, OSWEGO DATA,
LLC, 38 Oaklawn Avenue,
Farmingville, NY 11738, M&T BANK,
N.A., TEACHERS FEDERAL
CREDIT UNION, CHRISTINE
MARANDA, an individual, ROSEANN
MARANDA, an individual, DOUGLAS
MARANDA, an individual, DONALD
D’AVANZO, an individual, ETHEREUM
VENTURES, LLC, a New York limited
liability company, ANGELO POPE,
an individual, JEFFREY HOLBROOK,

1:19-CV-501

an individual and a resident ot the
state of New York, MELISSA WELSH,
an individual and a resident of the State
of New York, XYZ CORPORATION,
entities form by Michael Maranda and
Other Defendants, and XYZ LIMITED
LIABILITY COMPANY, formed by
Michael Maranda and other Defendants;
Real Property at 38 Oaklawn Avenue,
Athens, New York,
Defendants.
-------------------------------APPEARANCES:

OF COUNSEL:

WILLIAMS LLP
Attorneys for Plaintiffs
250 Greenwich Street, 46th Floor
New York, NY 10007

T. EDWARD WILLIAMS, ESQ.

E. STEWART JONES
HACKER MURPHY, LLP
Attorneys for Defendants Northway
Mining, LLC, Michael Maranda,
Hudson Data Center, Inc., Michael
Carter, and Michael Maranda LLC
28 Second Street
Troy, NY 12180

BENJAMIN F. NEIDL, ESQ.
JOHN F. HARWICK, ESQ.

DAVID N. HURD
United States District Judge
MEMORANDUM-DECISION and ORDER
I. INTRODUCTION
On April 12, 2019, plaintiffs 9384-2557 Québec Inc., MinedMap, Inc., and
Serenity Alpha, LLC (collectively “plaintiffs”) filed this action in the U.S.
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District Court for the Eastern District of New York against defendants
Northway Mining, LLC (“Northway”), Michael Maranda (“Maranda”),
Michael Carter (“Carter”), CSX4236 Motorcycle Salvage, LLC, Dror Svorai,
Mining Power Group, Inc., and Hudson Data Center. Dkt. No. 2. 1
According to plaintiffs, the named defendants violated the Racketeer
Influenced and Corrupt Organizations Act (“RICO”) by conspiring to commit,
and by committing, inter alia, mail and wire fraud. Broadly stated, plaintiffs
allege that Northway, Miranda, Carter, and the affiliated entities falsely
represented the existence of a specially equipped warehouse facility in
Coxsackie, New York (the “Facility”) that could handle the significant
electrical power needed to “mine” bitcoin, a form of digital currency.
Bitcoin “mining” is performed by high-powered computers that solve (or
“hash”) complex math problems. The process of solving these math problems
actually creates new bitcoin, a valuable commodity. Plaintiffs own thousands
of these computers (also called “machines” or “miners”) and tried to contract
with the named defendants to host them at the Facility.
Plaintiffs allege that they sent nearly 3,000 of these bitcoin mining
machines to the Facility and deposited large sums of money with the named
defendants to finance the planned spike in electrical consumption. Plaintiffs

1 Plaintiffs recently filed an amended complaint that names additional defendants appearing on

the caption. Dkt. No. 150.

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further allege that instead of buying electrical power, the defendants “used
the funds to purchase personal items, pay mortgages on personal homes they
own, and [make] other similar purchases.” In short, plaintiffs are trying to
get back the substantial money they spent as well as possession of their
valuable bitcoin mining machines.
On April 23, 2019, U.S. District Judge Brian M. Cogan issued a writ of
replevin that directed the U.S. Marshals Service to seize certain property at
issue in this litigation. Dkt. No. 12. However, Judge Cogan vacated that
order the following day and transferred the case to this District after finding
that the property at issue was located in the Northern District of New
York. Thereafter, Senior U.S. District Judge Thomas J. McAvoy granted
plaintiff’s request for the writ, Dkt. No. 19–20, and the parties engaged in
some discovery.
On July 13, 2020, plaintiffs moved for the issuance or re-issuance of an
emergency writ of replevin because the named defendants had refused to
release the bitcoin mining machines. Dkt. No. 81. According to plaintiffs, the
named defendants had actually moved the mining computers to a different
physical location in defiance of the Court’s prior order. Id. Following some
procedural wrangling, Judge McAvoy granted the motion. Dkt. Nos. 84, 88,
99, 101.

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Beginning on July 31, 2020, plaintiffs have filed four new motions. First,
plaintiffs have moved under Federal Rule of Civil Procedure (“Rule”) 70(e) for
the issuance of civil and criminal contempt sanctions against defendants
Maranda and Carter and non-party Melissa Welsh (“Welsh”). Dkt. No 110.
Second, plaintiffs have moved for an award of attorney’s fees to cover the cost
of their second motion for replevin. Dkt. No. 112. Third, plaintiffs have
moved under Rule 64 for pre-judgment attachment of certain assets based on
their contention that defendants are dissipating assets in anticipation of a
large money judgment against them. Dkt. No. 112. Fourth, plaintiffs have
moved for the release of $197,275.00 in insurance proceeds being held by
defendants. Dkt. No. 141.
On March 12, 2021, Judge McAvoy recused himself from this matter. Dkt.
No. 151. The case was reassigned, first to Senior U.S. District Judge
Lawrence E. Kahn and then to this Court. Dkt. Nos. 152–53. The pending
motions have been fully briefed and will be considered on the basis of the
submissions without oral argument.

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III. DISCUSSION 2
A. Contempt
Plaintiffs contend that Carter, Maranda, and Welsh are liable for criminal
and civil contempt because they willfully failed to comply with a June 19,
2020 Order issued by U.S. Magistrate Judge Christian F. Hummel. Dkt. No.
110 at 8. 3 Judge Hummel’s Order stated that:
As was directed during the 6/19/2020 conference and
placed on the record, by 6/20/2020, Defendants are
hereby directed to provide to plaintiffs, in a letter: 1.)
The address where the machines are physically
located and the Court further directs that there be no
movement of the machines without prior notice to
plaintiff and the Court; 2.) Defendants are directed to
address the issue [of] providing NiceHash IP
information to plaintiffs; and 3.) Defendants are
directed to address the issue of the Funds, as discussed
on the conference call.
Dkt. No. 76.
Plaintiffs contend that Maranda, Carter, and Welsh moved the bitcoin
mining machines in violation of Judge Hummel’s clear order not to do so
without prior notice to plaintiffs and the Court. Dkt. No. 110 at 9. According
to plaintiffs, Maranda and Carter immediately began moving the mining
machines out of New York and transferring them to a location in Illinois. Id.

2 The parties’ familiarity with the background set forth in the prior opinions will be assumed for

the purpose of resolving these motions. See, e.g., Dkt. No. 147.
3 Pagination corresponds to CM/ECF.

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In fact, plaintiffs claim that defendants actually began scraping serial
numbers off the machines, packing them into boxes, and driving them to
Illinois. Id. at 9–11.
Contempt may be civil or criminal. “Civil contempt differs from criminal
contempt, because criminal sanctions are punitive in nature, while civil
sanctions are not.” Al Hirschfeld Found. v. Margo Feiden Galleries Ltd., 438
F. Supp. 2d 203, 207 (S.D.N.Y. 2020). “The imposition of civil contempt
sanctions may serve dual purposes: to secure future compliance with court
orders and to compensate the party that has been wronged.” Paramedics
Electromedicina Com. Ltda. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645,
657 (2d Cir. 2004).
“A court may hold a party in civil contempt for failure to comply with a
court order if (1) the order the party failed to comply with is clear and
unambiguous, (2) the proof of noncompliance is clear and convincing, and
(3) the party has not diligently attempted to comply in a reasonable
manner.” Al Hirschfeld Found., 438 F. Supp. 3d at 207 (cleaned up).
A finding of criminal contempt requires a showing that “(1) the court
entered a reasonably specific order; (2) defendant knew of that order;
(3) defendant violated that order; and (4) his violation was willful.” United
States v. Cutler, 58 F.3d 825, 834 (2d Cir. 1995). Criminal contempt requires

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proof beyond a reasonable doubt. United States v. Paccione, 964 F.2d 1269,
1274 (2d Cir. 1992).
Upon review, plaintiffs’ motion for contempt will be denied. A review of
the evidence submitted by the parties establishes that Judge Hummel
ordered defendants to provide the current location of the mining machines
and to keep the machines at that location until plaintiffs picked them up.
The evidence further establishes that defendants identified certain mining
machines, prepared them for transfer, and permitted plaintiffs an
opportunity to pick them up, but that plaintiffs refused and claimed that the
mining machines in question were not the same machines they had sent to
defendants. 4
As discussed supra, plaintiffs claim that defendants moved the machines
owned by plaintiffs to somewhere out of state, possibly to Illinois. However,
plaintiffs have not presented evidence to support this claim. In contrast,
defendants have provided affidavits and other evidence showing the status of
the machines, which remain in facilities in Oswego, New York.
In short, plaintiffs have not shown by “clear and convincing” evidence,
much less proof beyond a reasonable doubt, that one or more of the
defendants (or their non-party confederates) violated the June 19, 2020 Order

4 Some of the confusion is based on the fact that defendants hosted a large number of bitcoin

mining machines owned by persons and entities other than plaintiffs at the same Facility.
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issued by Judge Hummel. Accordingly, plaintiffs’ motion for contempt will be
denied.
B. Pre-Judgment Attachment
Plaintiffs contend an order of pre-judgment attachment is necessary
because defendants have begun to hide assets and transfer property out of
the state. For instance, plaintiffs contend defendants have begun to move
plaintiffs’ bitcoin mining machines to a location in Illinois. Dkt. No. 111 at 3.
Plaintiffs also contend that defendants have transferred substantial sums of
money to Welsh, a non-party, and begun withdrawing assets from various
accounts and hiding the money in cash at their homes. Id. at 3–4. According
to plaintiffs, a pre-judgment attachment order is warranted to prevent the
dissipation of these and other funds. Id.
“Prejudgment attachment is a provisional remedy to secure a debt by
preliminary levy upon the property of the debtor in order to conserve that
property for eventual execution.” DLJ Mortg. Cap., Inc. v. Kontogiannis, 594
F. Supp. 2d 308, 318 (E.D.N.Y. 2009) (citation omitted). Rule 64 provides
that “every remedy is available that, under the law of the state where the
court is located, provides for seizing a person or property to secure
satisfaction of the potential judgment.” FED. R. CIV. P. 64(a).
As relevant here, Section 6212 of the New York Civil Practice Law and
Rules governs attachment in New York. Silverman v. Miranda, 116 F. Supp.
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3d 289, 310 (S.D.N.Y. 2015). A plaintiff must meet a high burden in order to
prove a right to attachment, and in New York “attachment statutes are
construed strictly against those who seek to invoke the remedy.” In re
Amaranth Nat. Gas Commodities Litig., 711 F. Supp. 2d 301, 305 (S.D.N.Y.
2010) (citations omitted).
“To be successful on a motion for attachment, a plaintiff must demonstrate
(1) that there is a cause of action; (2) that it is probable that plaintiff will
succeed on the merits; (3) that one or more grounds for attachment provided
in Section 6201 exist; and (4) that the amount demanded from the defendant
exceeds all counterclaims known to the plaintiff.” Silverman v. Miranda, 116
F. Supp. 3d 289, 310 (S.D.N.Y. 2015) (cleaned up).
In support of their request, plaintiffs rely on Section 6201(3), which
permits an order of attachment when “the defendant, with the intent to
defraud his creditors or frustrate the enforcement of a judgment that might
be rendered in plaintiff’s favor, has assigned, disposed of, encumbered or
secreted property, or removed it from the state or is about to do any of these
acts.” N.Y. C.P.L.R. § 6201(3).
“To show a probability of success on the merits, the moving party must
demonstrate by affidavit that it is more likely than not that it will succeed on
its claims.” DLJ Mortg. Cap., Inc., 594 F. Supp. 2d at 319. “While all
legitimate inferences should be drawn in favor of the party seeking
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attachment, the moving party must nevertheless make an evidentiary
showing of proof stronger than that required to establish a prima facie case in
order to satisfy this requirement.” Id. (cleaned up).
Upon review, plaintiffs’ motion for prejudgment attachment will be
denied. “Removal, assignment, or other disposition of property is not a
sufficient ground for attachment; fraudulent intent must be proven, not
simply alleged or inferred, and the facts relied upon to prove it must be fully
set forth in the moving affidavits.” DLJ Mortg. Cap. Inc., 594 F. Supp. 2d at
319 (citations omitted). “Affidavits containing allegations raising a mere
suspicion of an intent to defraud are insufficient.” Id.
A review of the record establishes that plaintiffs have failed to make any
sort of meaningful evidentiary showing that defendants have transferred
money or assets in a conscious attempt to avoid judgment. Rather than
support this request with specific evidence, plaintiffs have instead alleged a
number of supposedly suspicious transfers. Further, plaintiffs have failed to
identify what property they would like attached other than the bitcoin
mining machines, which have already been ordered returned through the
writ of replevin. Accordingly, this motion will be denied.
C. Attorney’s Fees
Plaintiffs contend that they are entitled to attorney’s fees and costs under
Rule 11, 28 U.S.C. § 1927, and/or this Court’s inherent power to sanction
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litigants. Dkt. No. 112 at 2. According to plaintiffs, fees and costs are
warranted for the litigation surrounding the emergency writ of replevin
issued on July 16, 2020 and executed on July 22, 2020. Id. at 5.
Rule 11 provides in relevant part that, by presenting a “pleading, written
motion, or other paper” to the Court, an attorney “certifies that to the best of
the person’s knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances” that:
(1) it is not being presented for any improper purpose,
such as to harass, cause unnecessary delay, or
needlessly increase the cost of litigation;
(2) the claims, defenses, and other legal contentions
are warranted by existing law or by a nonfrivolous
argument for extending, modifying, or reversing
existing law or for establishing new law;
(3) the factual contentions have evidentiary support
or, if specifically so identified, will likely have
evidentiary support after a reasonable opportunity
for further investigation or discovery; and
(4) the denials of factual contentions are warranted on
the evidence or, if specifically so identified, are
reasonably based on belief or a lack of information.
FED. R. CIV. P. 11(b).
As the Second Circuit has explained, Rule 11 “provides a vehicle for
sanctioning an attorney, a client, or both.” United States v. Int’l Brotherhood
of Teamsters, Chauffeurs, Warehousemen & Helpers of Am., 948 F.2d 1338,
1343 (2d Cir. 1991). “By its terms, Rule 11 requires an attorney to sign every
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pleading, motion, or other paper submitted on behalf of his client, and the
attorney is subject to sanctions if the document he signs violates the
strictures of Rule 11.” Id. at 1343–44.
“In order to determine if Rule 11 sanctions are appropriate, the Court
must apply an ‘objective standard of reasonableness’ to determine if the
attorney has conducted a ‘reasonable inquiry’ into the basis of the arguments
advanced.” Sorenson v. Wolfson, 170 F. Supp. 3d 622, 626 (S.D.N.Y. 2016)
(quoting MacDraw, Inc. v. CIT Grp. Equip. Fin., Inc., 73 F.3d 1253, 1257 (2d
Cir. 1996). “The imposition of Rule 11 sanctions is discretionary and should
be reserved for extreme cases, and all doubts should be resolved in favor of
the signing attorney.” Id. (cleaned up).
Under 28 U.S.C. § 1927, “[a]ny attorney or other person admitted to
conduct cases in any court of the United States or any Territory thereof who
so multiplies the proceedings in any case unreasonably and vexatiously may
be required by the court to satisfy the excess costs, expenses, and attorneys’
fees reasonably incurred because of such conduct.”
“Courts also have inherent authority to award attorneys’ fees against a
party who has ‘acted in bad faith, vexatiously, wantonly, or for oppressive
reasons.’” Sorenson, 170 F. Supp. 3d at 633 (quoting Chambers v. NASCO,
Inc., 501 U.S. 32, 45–46 (1991)). “The Supreme Court has cautioned that

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because of the very potency of a court’s inherent power, it should be exercised
with restraint and discretion.” Id. (cleaned up).
“To impose sanctions under either [§ 1927 or the court’s inherent
authority], the trial court must find clear evidence that (1) the offending
party’s claims were entirely meritless and (2) the party acted for improper
purposes.” Sorenson, 170 F. Supp. 3d at 633 (quoting Agee v. Paramount
Commc’ns, Inc., 114 F.3d 395, 398 (2d Cir. 1997)). “Thus, a finding of bad
faith is a prerequisite to an award of attorney’s fees under either
authority.” Id.
Upon review, plaintiffs’ motion for fees and costs will be denied. As for
fees under § 1927 or the Court’s inherent authority, a review of the record
does not reveal any bad-faith effort by counsel to delay or prevent recovery of
the bitcoin mining machines. As for fees under Rule 11, plaintiffs have not
pointed to a specific pleading that could be sanctionable. Accordingly, this
motion will be denied.
D. Turnover of Proceeds
Plaintiffs, without much elaboration, contend that defendants “are
unlawfully holding on to $197,275.00 that belongs to Plaintiffs.” Dkt. No. 142
at 4. As defendants try to explain, there was a power surge at the Facility on
April 23, 2020 that damaged 607 bitcoin mining machines. Dkt. No. 144 at 3.
Maranda made an insurance claim to his carrier for the loss and, several
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months later, heard back from the insurance carrier that it would pay
$197,275.00 to settle the claim. Id. When the money arrived, defendants
wired it to defendants’ counsel, who have been holding the money in their
attorney escrow account. Id. Indeed, on October 20, 2020 Judge McAvoy
ordered counsel to continue holding the funds in that account until further
order of the Court. Dkt. No. 137.
Upon review, this motion will be denied for substantially the reasons set
forth in defendants’ opposition. See Dkt. No. 144. As defendants point out, it
is unclear on what basis plaintiffs believe they can order the immediate
disbursement of the money from defendants’ attorneys escrow account. This
is especially so where, as here, plaintiffs have not bothered to identify a
specific legal basis in their moving papers. Dkt. No. 142.
To the extent this request might be grounded in replevin, the insurance
proceeds were a money payment made directly to defendants by their
insurance carrier, not the type of specifically identifiable goods that can be
provisionally restored to plaintiffs (as putative owners) pending the
determination of the merits. Accordingly, this motion will be denied.
IV. CONCLUSION
Therefore, it is
ORDERED that
1. Plaintiffs’ motion for contempt is DENIED;
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2. Plaintiffs’ motion for prejudgment attachment is DENIED;
3. Plaintiffs’ motion for attorney’s fees is DENIED; and
4. Plaintiffs’ motion for disbursement of funds is DENIED.
The Clerk of the Court is directed to terminate the pending motions.
IT IS SO ORDERED.

Dated: March 31, 2021
Utica, New York.

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