Outpost Capital Management LLC et al v. Prioleau

Filing 25

ORDER AND OPINION The Court finds that jurisdictional discovery is necessary. The parties shall complete jurisdictional discovery by September 19, 2017 and file supplemental briefs with the Court on or before October 3, 2017. The Court's current scheduling order (Dkt. No. 7) is stayed pending completion of jurisdictional discovery and supplemental briefing. AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 7/18/2017. (sshe, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
Outpost Capital Management, LLC
and Bill Laggner,

)
)
)
Plaintiffs,
)
)
v.
)
)
Robert Prioleau, as Manager of HMB
)
Ventures, LLC; HMB Ventures, LLC; and
)
Halsey Minor
)
)
)
Defendants.
)
~~~~~~~~~~~~~~~~)

Civil Action No. 2: 16-cv-3684-RMG

ORDER and OPINION

This matter is before the Court on two motions to dismiss, one filed by Defendants HMB
Ventures, LLC and Halsey Minor and a second filed by Defendant Robert Prioleau. (Dkt. Nos.
15, 16.) Plaintiffs have filed a combined response in opposition to both motions to dismiss, and
defendants have filed replies. (Dkt. Nos. 19, 22, 23.) For the reasons set forth below, the Court
finds that jurisdictional discovery is warranted. The parties shall complete jurisdictional
discovery by September 19, 2017 and file supplemental briefs with the Court on or before
October 3, 2017.
I.

Relevant Facts
a. Bitreserve, Ltd. and Related Entities

This matter involves a contract dispute over a Stock Purchase, Transfer, and Voting
Agreement for shares of a privately-held company called "Bitreserve, Ltd." The parties'
briefings have not been helpful to the Court, so the Court has relied substantially on publicly

available records from the Secretaries of State in California, South Carolina, and Washington,
which reveal the following about Bitreserve, Ltd. and its related entities.
•

"Bitreserve, Inc." is an entity that was incorporated in the state of Washington on
January 13, 2014. It has been licensed to do business in California since May 2014. The
entity changed its name to "Uphold, Inc." in February 2017, several months after this
lawsuit was filed .

•

"Bitreserve HQ, Inc." is an entity that was incorporated in South Carolina on March 31 ,
2014. It has been licensed to do business in California since December 2014. The entity
changed its name to "Uphold HQ, Inc." in March 2016. Minor has conceded that
Bitreserve, Ltd. "operates" through this "HQ" entity that is incorporated in South
Carolina. (Dkt. No. 23 at 2.)

•

"Bitreserve, Ltd.," whose stock is the subject of this litigation is, according to
Defendant Halsey Minor, a Cayman Islands corporation with its principal place of
business in California. (Id. at 3.) Minor asserts that Bitreserve, Ltd. has "always
maintained its headquarters in California." (Id. at 6.) Minor, who resides in California, is
the founder and former CEO of Bitreserve, Ltd. (Dkt. No. 12.) Plaintiffs allege that
Bitreserve, Ltd. was "previously headquartered in South Carolina and is registered to do
business in this state." (Id. at 1.) The Court has not found any record of Bitreserve, Ltd.
being incorporated or registered to do business in South Carolina. Although Bitreserve
HQ and Bitreserve, Inc. are both licensed to do business in California, this Court has not
been able to identify any publicly available record showing that an entity named
"Bitreserve, Ltd." is licensed to do business in California. For this reason, the Court

cannot readily accept Defendants' assertion that Bitreserve, Ltd. ' s principal place of
business is California.
Because the parties' briefings reveal that Plaintiffs have not had access to the information needed
to properly brief arguments about jurisdiction and venue, and because the Court is not confident
that Defendants' representations about the various Bitreserve entities are accurate, jurisdictional
discovery is warranted. 1 The parties will have until September 19, 2017 to complete
jurisdictional discovery and until October 3, 2017 to file supplemental briefs on these issues. To
guide the parties during this period of jurisdictional discovery, the Court sets forth below its
preliminary understanding of the facts and relevant legal standards.

b. Minor creates HMB Ventures, LLC and appoints Prioleau as Manager
Plaintiffs allege that, in 2015, Minor transferred his 30,000,000 shares of Bitreserve, Ltd.
to HMB Ventures, LLC ("HMB"), a limited liability company incorporated in Delaware. 2 (Dkt.
No. 12 at 3-4.) Minor is the sole member of HMB. (Dkt. Nos. 12 at 4; 15-2 at 1.) The details of
this transaction are set forth in HMB ' s Limited Liability Company Agreement ("LLC
Agreement"). (Dkt. No . 15-2 at 13-20.) The purported purpose of the LLC Agreement, signed on
September 24, 2015 , was to allow Minor to "relinquish[] any right to vote [his] Bitreserve Shares
and any right to exercise control or influence over the voting of his Bitreserve Shares." (Id. at
13.) The LLC Agreement names Robert Prioleau as Manager and vests him with the "sole,
complete and unrestricted right to vote the Bitreserve Shares and all rights to exercise control
and influence over the voting of the Bitreserve Shares." (Id. at 15.)

c. The Parties Execute a Stock Purchase, Transfer, and Voting Agreement
1

Plaintiffs have requested a period of jurisdictional discovery. (Dkt. No. 19 at 20, n.6.)
Minor has represented that HMB's principal place of business is in Beverly Hills, California.
(Dkt. No . 15-2 at 1.)

2

Plaintiff Laggner is an individual who resides in Texas. (Dkt. No. 12 at 3.) Plaintiff
Outpost Capital Management, LLC is a limited liability company incorporated in Delaware with
its principal place of business in Connecticut. (Id.) Outpost has only two members, and both are
residents of Connecticut. (Id.)
Plaintiffs allege that they entered a Stock Purchase, Transfer, and Voting Agreement
("Stock Agreement") with Defendants on June 26, 2016 in which each Plaintiff agreed to
purchase 4,843,890 shares of stock in Bitreserve, Ltd. (Id. at 1.) Under the terms of the Stock
Agreement, the seller agreed to transfer and assign the shares to Plaintiffs after Bitreserve, Ltd. 's
"Board approves such company's next financing." (Dkt. No. 19-9 at 2.)
The Stock Agreement includes a voting provision under which the "seller agrees to vote
his and any of his affiliate[s'] remaining shares ... according to the vote recommended by the
majority of the Board of Directors of Bitreserve, Ltd. until such time as Bitreserve has completed
a financing." (Dkt. No. 15-2 at 6.) At the time the parties entered the Stock Agreement, only
Prioleau, as Manager of HMB, had the ability to vote Bitreserve, Ltd. shares. (Id. at 15 .) Prioleau
is not listed as a party to the Stock Agreement, but he signed the Agreement and wrote under his
signature "I have reviewed this Agreement and agree to fulfill its terms as to the Shares and
[Minor] in my capacity as trustee and acknowledge full receipt of the consideration paid for said
shares." (Id. at 8.)

d. The Condition Precedent of the Stock Agreement is Allegedly Met and
Defendants Allegedly Breach the Stock Agreement
After they entered the Stock Agreement, Plaintiffs traveled to California to meet with
investors and pitch their financing proposal. (Dkt. No. 15-1 at 3.) Minor asserts that the
Bitreserve, Ltd. Board rejected Plaintiffs' financing proposal for Bitreserve, Ltd. (Id.) Plaintiffs

allege that "on or about July 21, 2016, the Company's Board of Directors approved the
Company's next round of financing, thereby satisfying the final condition precedent of the
Agreement. " (Dkt. No. 12 at 6.) There is a thus a dispute of fact about whether this condition
precedent was met, triggering Minor's obligations under the Stock Agreement. Plaintiffs allege
that Defendants breached the Stock Agreement when they refused to transfer the shares. (Id. at
2.)

e. Plaintiffs Sue Prioleau for Breach of Contract
On November 18, 2016, Plaintiffs filed this lawsuit against Prioleau alone, seeking
specific performance of the Stock Agreement. (Id. at 6.) Prioleau filed his answer on December
15, 2016 (Dkt. No . 6), acknowledging that he had signed the Stock Agreement but denying that
he had or has "the authority to effectuate the transfer of shares." (Id. at 1.)

f.

Minor Terminates Prioleau as Manager of HMB

On December 16, 2016, the day after Prioleau filed his answer (Dkt. No. 6), Minor
terminated Prioleau as Manager of HMB by signing a document entitled "Termination as
Manager." (Dkt. No . 15-2 at 10-11.) That document, which Minor purportedly executed on
behalf of HMB , amended HMB's LLC Agreement to remove any reference to a "Manager" and
vested all voting rights with Minor. (Id. at 10.)

g. Plaintiffs Amend Complaint to Add Minor and HMB as Defendants
Plaintiffs then filed an amended complaint, adding Minor and HMB as parties and adding
two new causes of action for breach of contract accompanied by a fraudulent act (against Minor)
and civil conspiracy (against all defendants). (Dkt. No. 12 at 8.) Plaintiffs allege that Minor' s
"attempt to terminate Prioleau as Manager of HMB during the pendency of this action constitutes
a fraudulent act meant to frustrate Plaintiffs' ability to enforce the clear terms of the agreement. "

(Id. at 7.) Plaintiffs seek specific performance of the Stock Agreement, monetary damages (if
specific performance is unavailable), punitive damages, and special damages as a result
Defendants' alleged civil conspiracy. (Id. at 9-10.)

II.

Legal Standard - Personal Jurisdiction
On a motion to dismiss for lack of personal jurisdiction, the plaintiff bears the burden to

establish that a ground for jurisdiction exists. Combs v. Bakker, 886 F.2d 673 , 676 (4th Cir.
1989). To assert jurisdiction over a non-resident defendant, Plaintiffs must satisfy two
conditions: (1) that the exercise of jurisdiction is authorized by South Carolina' s long-arm
statute, and (2) that the exercise of personal jurisdiction complies with the constitutional due
process requirements. See Christian Sci. Bd. of Dirs. of First Church of Christ, Scientist v.

Nolan, 259 F.3d 209, 215 (4th Cir. 2001).
South Carolina' s long-arm statute provides, in relevant part, that "A court may exercise
personal jurisdiction over a person who acts directly or by an agent as to a cause of action from
the person' s: (1) transacting any business in this State ... ; (3) commission of a tortious act in
whole or in part in this State ... ; or (7) entry into a contract to be performed in whole or in part
by either party in this State .... " S.C. Code Ann. § 36-2-803(A). South Carolina has interpreted
its long-arm statute to extend to the constitutional limits of due process. See Foster v. Arletty 3

Sari, 278 F.3d 409, 414 (4th Cir. 2002); S. Plastics Co. v. S. Commerce Bank, 423 S.E.2d 128,
130-31 (S.C. 1992). Thus, the jurisdictional requirements collapse into a single inquiry: whether
the due process requirements are met. ESAB Group, Inc. v. Centricut, LLC, 34 F. Supp. 2d 323 ,
328 (D.S.C. 1999); Sonoco Products Co. v. Inteplast Corp., 867 F. Supp. 352, 354 (D.S.C.
1994). Due process requires that a defendant have sufficient "minimum contacts with [the forum]
such that the maintenance of the suit does not offend ' traditional notions of fair play and

substantial justice" " Int '! Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken
v. Meyer, 311 U.S. 457, 463 (1940)).
To determine whether specific jurisdiction exists, the Court considers "(I) the extent to
which the defendant has purposefully availed itself of the privilege of conducting activities in the
state; (2) whether the plaintiffs' claims arise out of those activities directed at the state; and (3)
whether the exercise of personal jurisdiction would be constitutionally ' reasonable. "' See
Carefirst of Maryland, Inc. v. Carefirst Pregnancy Centers, Inc., 334 F.3d 390, 397 (4th Cir.
2003) (citing ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 711-12 (4th Cir.
2002)).
In conducting its "individualized and pragmatic inquiry" of the facts surrounding the
defendant's establishment of minimum contacts with the forum state, courts look to multiple
factors, including:
(i)

whether the defendant initiated the contractual relationship;

(ii)

whether the contract would be performed, in part, in South Carolina;

(iii)

whether the agreement created any ongoing obligations or relationship
among the contracting parties;

(iv)

whether the defendant maintains offices or agents in South Carolina;

(v)

whether the defendant deliberately engaged in significant or longterm business activities in South Carolina;

(vi)

whether the defendant made in-person contact with a resident of
South Carolina regarding the business relationship; and

(vii)

the nature, quality and extent of the parties' communications about
the agreement or business.

Red Bone Alley Foods, LLC v. Nat '! Food & Beverage, Inc., No. 4:13-CV-3590, 2014 WL
1093052, at *4 (D.S.C. Mar. 14, 2014) (finding defendant subject to specific jurisdiction on
account of defendant's long-term business activities in South Carolina, contractual performance
in South Carolina, in-person contact with plaintiff in South Carolina, and emails with plaintiff
in South Carolina); McNeil v. Sherman, No. 2:09-CV-00979, 2009 WL 3255240, at *4 (D.S.C.
Oct. 7, 2009) (finding jurisdiction over defendant who knowingly established an ongoing
business relationship with a South Carolina resident).

III.

Discussion
a. Personal Jurisdiction
i. Prioleau
The parties do not dispute that this Court has personal jurisdiction over Prioleau because

he is a resident of South Carolina. When this lawsuit was initially filed, Prioleau may have been
a proper party, although there is a dispute of fact about whether he was actually in a position to
transfer the shares. However, it is undisputed that Prioleau is no longer the manager of HMB so
is no longer in the position to effectuate any relief ordered by this Court with regard to specific
performance of the Stock Agreement. (Dkt. No. 15-2 at 10-11.) Because the Court has refrained
from ruling on Plaintiffs ' civil conspiracy claim in this order (the only remaining claim against
Prioleau), it has not yet determined whether Prioleau is still a proper party to this lawsuit.

ii. Minor and HMB
Minor contends that there is no basis for this Court to assert jurisdiction over him or
HMB because (1) Minor is domiciled in California, and HMB is incorporated in Delaware with
its principal place of business California; (2) neither Minor nor HMB does business in South

Carolina; and (3) neither Minor nor HMB is subject to jurisdiction under South Carolina's long
arm statute. (Dkt. No. 15-1 at 6.)
First, although HMB is apparently incorporated in Delaware, there is no record of that
entity being licensed to do business in California. As a result, as with Bitreserve, Ltd., the Court
cannot readily accept that HMB ' s principal place of business is California. The parties should
address this issue in their supplemental briefs following jurisdictional discovery.
Second, under South Carolina's long arm statute, "A court may exercise personal
jurisdiction over a person who acts directly or by an agent as to a cause of action arising from the
person's . . . entry into a contract to be performed in whole or in part by either party in this
State .... " S.C. Code Ann. § 36-2-803(A). Minor and HMB argue that the Stock Agreement
"would not have been performed in South Carolina, as only Minor could transfer the Shares and
that would have been performed, if the conditions had been met, in California." (Dk. No. 15-1 at
6, n.3 .) The Stock Agreement that is the subject of this dispute was a Stock Purchase, Transfer,
and Voting Agreement. Minor has admitted that Prioleau, who the parties do not dispute was
empowered to vote all Bitreserve, Ltd. shares under HMB's LLC Agreement, "ratified the Stock
Agreement at issue in this action in case he was ever called on to vote Mr. Minor's Shares in
connection with a completed financing of Bitreserve." (Dkt. No. 23 at 2.) Prioleau is domiciled
in South Carolina, so it appears that at least one aspect of the Stock Agreement would have to be
performed in South Carolina. 3 See, e.g., Troy H Cribb & Sons, Inc. v. Cliffstar Corp., 273 S.C.
623 , 625 (1979) ("It is inconceivable that appellant would authorize respondent to submit bids on
its behalf, knowing that respondent's corporate domicile and principal place of business was

3

The parties should address this issue in their supplemental briefs following jurisdictional
discovery.

South Carolina, without anticipating that' performance would at least in part be made in South
Carolina. Further, it remains a mystery to the Court where Bitreserve, Ltd. and HBM actually
conduct business, and it is conceivable that they in fact "do business" or did business through
Bitreserve, Ltd. ' s "operating" arm, Uphold HQ, Inc. , which is apparently still incorporated in
South Carolina.
If it is the case that South Carolina' s long-arm statute covers Minor' s activities, the Court

must then determine whether subjecting Minor to jurisdiction in South Carolina satisfies due
process requirements. Whether the defendant maintains offices or agents in the forum state is
one of several factors that courts consider when making this due process inquiry. See Consulting
Engineers Corp. v. Geometric Ltd., 561 F.3d 273 , 278 (4th Cir. 2009); Red Bone Alley Foods,
2014 WL 1093052, at *4). HMB's LLC Agreement, which is governed by Delaware law (Dkt.
No. 19-7 at 7), may have created an agency relationship between Minor and Prioleau which
Minor relied on when he entered the Stock Agreement that Prioleau signed as "trustee." Under
Delaware law, '" an agency relationship is created when one party consents to have another act
on its behalf, with the principal controlling and directing the acts of the agent. "' In re NHL INC ,
320 B.R. 563 , 570 (Bankr. D. Del. , 2005) (quoting Fisher v. Townsends, Inc., 695 A.2d 53 , 5758 (Del. 1997)). The Bankruptcy Appellate Panel of the Sixth Circuit had the opportunity to
consider an overlapping agency/trustee relationship that is relevant here:
A person may be both agent of and trustee for another. If he undertakes to act on
behalf of the other and subject to his control, he is an agent; but if he is vested
with the title to property which he holds for his principal, he is also a trustee. In
such a case, however, it is the agency relation that predominates, and the
principles of agency, rather than the principles of trust, are applicable. This is the
case, for example, where the title to bonds or shares of stock or other securities is
vested in a person who undertakes to hold subject to the directions of the person

who caused the property to be vested in him. He is an agent since he is acting

subject to the control of another, even though he is also trustee since he is vested
with the title to the property.

In re Adams, 302 B.R. 535, 544 (B.A.P. 6th Cir. 2003) (quoting Austin Wakeman Scott and
William Franklin Fratcher, The Law of Trusts § 8 (4th ed. 1987)); see also 2A C.J.S. Agency
§ 24. Although Prioleau and Minor appear to have had an agency relationship that gives this
Court jurisdiction over Minor, jurisdictional discovery is needed to clarify their relationship. The
parties' briefs also suggest that Prioleau is an agent of HMB and that Minor may have an alterego relationship with HMB because he totally dominates and controls that entity. The parties
should address this issue in their supplemental briefs as well.

IV.

Venue
Because many of the facts relevant to this Court's determination about venue overlap

with the facts relevant to personal jurisdiction, the Court will not rule on venue before
jurisdictional discovery is complete.

V.

Conclusion
For the reasons set forth above, the Court finds that jurisdictional discovery is necessary.

The parties shall complete jurisdictional discovery by September 19, 2017 and file supplemental
briefs with the Court on or before October 3, 2017. The Court's current scheduling order (Dkt.
No. 7) is stayed pending completion of jurisdictional discovery and supplemental briefing.

AND IT IS SO ORDERED.

July

/~

United States District Judge
,2017

Charleston, South Carolina