Gordon et al v. Dailey et al, No. 1:2014cv07495 - Document 113 (D.N.J. 2017)

Court Description: OPINION FILED. Signed by Judge Joseph H. Rodriguez on 3/30/17. (js)
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Gordon et al v. Dailey et al Doc. 113 UNITED STATES DISTRICT COURT DISTRICT OF NEW J ERSEY BRANDON GORDON, et al., : : Plaintiffs, v. Hon. J oseph H. Rodriguez Civil Action No. 14-7495 : OPINION ZACHARY DAILEY and LAB RAT DATA PROCESSING, LLC., : Defendants. : This m atter is before the Court on Plaintiffs’ Motion to Am end and for leave to File a Second Am ended Com plaint [Dkt. No. 10 4]. Plaintiffs’ m otion was filed in response to the Court’s J une 21, 20 16 Order on Defendants’ Motion to Dism iss in which the Court dism issed the m otion without prejudice and ordered Plaintiffs to show cause why the case should not be dism issed for want of subject m atter jurisdiction. See Dkt Nos. 98, 99. Plaintiffs subm it a proposed Second Am ended Com plaint which addresses som e of the Court’s concerns related to the nature of the property at issue: Bitcoins. In an attem pt to cure som e of the inadequacies noted by the Court as to the First Am ended Com plaint, 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 investm ent contracts and therefore m eet 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 am ount in controversy exceeds the jurisdictional threshold. In order to dem onstrate that the dam ages exceed $ 75,0 0 0 .0 0 , Plaintiffs claim that they: 1) gathered information related to each investm ent in the LRM Bonds, 2) set forth all of the re-sales of the LRM bonds, 3) described the dividends 1 Dockets.Justia.com 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 investm ents of each of the ten Plaintiffs. Here, the Court addresses whether the proposed Second Am ended Com plaint sufficiently pleads federal subject m atter jurisdiction. The Court finds that diversity jurisdiction is present and, therefore, leave to am end will be granted because such an am endm ent is not futile.1 I. Standard on Motion to Am end Federal Rule of Civil Procedure 15 (“Rule 15") encourages and provides for a liberal policy for am ending pleadings. Un der Rule 15(a), leave to am end pleadings “shall be freely given when justice so requires.” In From an v. Davis, the Suprem e court articulated the liberal policy of allowing am endm ents underlying Rule 15(a) as follows: If the underlying facts or circum stances relied upon by a plaintiff m ay be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the m erits. In the absence of any apparent or undeclared reasons– such as undue delay, bad faith or dilatory m otive on the part of the m ovant, repeated failure to cure deficiencies by am endm ents previously allowed, undue prejudice to the opposing party by virtue of allowance of the am endm ent, futility of am endm ent, 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. 20 0 0 ). The Third Circuit has elaborated on the proper analysis to apply: The trial court’s discretion under Rule 15, however, m ust be tem pered by considerations of prejudice to the non-m oving party, for undue prejudice is the “touchstone for the denial of leave to am end.” . . . In the absence of 1 Because the proposed Second Amended Com plaint satisfies both the diversity and m onetary requirem ents of 28 U.S.C. § 1332, the Court will not address Plaintiffs’ argum ents with respect to 28 U.S.C. §§ 1331. 2 substantial or undue prejudice, denial m ust be grounded in bad faith or dilatory m otives, truly undue or unexplained delay, repeated failure to cure deficiency by am endm ents previously allowed or futility of am endm ent. 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 Com m ’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 m otions to am end, it is well established that the futility of am endm ent is one of the factors that m ay be considered by the Court in denying a m otion to am end. From an, 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, 120 3 (3d Cir. 1989). “‘Futility’ m eans that the com plaint, as am ended, would fail to state a claim upon which relief could be granted.” Shane, 213 F.3d at 115. In assessing futility, a district court m ust apply the sam e 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. 20 0 0 )).2 Thus, if the proposed am endm ent “is frivolous or advances a claim or defense that is legally insufficient on its face, the court m ay deny leave to am end. If a proposed am endm ent is not clearly futile, then denial of leave to am end is im proper.” Wright, Miller & Kane, Federal Practice and Procedure § 1487 at 637-642 (2d ed. 1990 ) (footnote om itted).3 Finally, the Third 2 In addition, the court is “not perm itted to go beyond the facts alleged in the Complaint and the documents on which the claim s m ade therein were based.” In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410 , 1425 (3d Cir. 1997). 3 To dem onstrate that a claim is “legally insufficient on its face,” and that it could not withstand a m otion to dism iss, the opposing party must be able to dem onstrate that “it appears beyond doubt that the 3 Circuit has held that an am endm ent is futile when the claim s asserted by the plaintiffs are tim e-barred under the state of lim itations. In re NAHC, Inc., Sec. Litig., 30 6 F.3d 1314, 1332 (3d Cir. 20 0 2). II. Analysis The diversity statute provides, in relevant part, “[t]he district court shall have original jurisdiction of all civil actions where the m atter in controversy exceeds the sum or value of $ 75,0 0 0 , exclusive of interest and costs.”4 In exam ining the First Am ended Com plaint on the m otion to dism iss, the Court concluded that it had no way of determ ining whether the m atter in controversy exceeds $ 75,0 0 0 because the First Am ended Com plaint did not allege a dollar value associated with a Bitcoin at any given tim e, m uch less during the relevant tim e period(s). See J une 21, 20 16 Opinion and Order [Dkt. Nos. 98, 99]. In addition, the Court was troubled by the lack of inform ation related to the nature of Bitcoins and how they function, the num ber of Bitcoins each Plaintiff paid for the bonds and whether the Defendants ever paid any Plaintiff any weekly “dividends.” The proposed Second Am ended Com plaint addresses these concerns. In addition, proposed Second Am ended Com plaint includes an explanation of the nature of Bitcoins and how they function. See Proposed Sec. Am end. Com p. ¶¶ 24-31. Plaintiffs also set forth a calculation m ethod 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 Am ended Com plaint, the proposed Second Amended Com plaint sufficiently alleges com plete diversity of citizenship; Defendants are alleged to be New J ersey citizens (Sec Am end. Com pl. ¶¶ 14-15), and none of the Plaintiffs are alleged to be New J ersey citizens (Sec. Am end. Com pl. ¶¶ 2-13). 4 Plaintiff Net Bitcoin Investm ent Bonds Value in U.S. Dollars 5 Gordon 214.187810 51 $ 142,40 0 .62 Green 290 .84851557 $ 193,367.73 Vondrak 120 .27261 $ 79,962.0 4 Lobb 10 5.640 0 5944 $ 70 ,233.74 Piper 5.823610 22 $ 3,871.77 Galido 82.337770 13 $ 54,741.44 Boehler 64.530 32929 $ 42,90 2.34 Fisher-Levine 20 7.390 60 97 $ 137,881.57 Flachsbart 14.0 2584615 $ 9,324.94 Henderson 859.7813919 $ 571,617.0 6 Id. Thus, the Plaintiffs sufficiently plead diversity of citizenship jurisdiction. attach a detailed chart to the proposed Second Am ended Com plaint that sets forth losses for som e 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 50 2 (20 0 5) (“When the well-pleaded com plaint contains at least one claim that satisfies the am ount-in-controversy requirem ent, 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: m ultiply the net number of Bitcoin by the current exchange rate in U.S. Dollars. See http:/ / www.coindesk.com / price. At the tim e the Motion to Am end was filed, as of J uly 13, 20 16 the exchange rate equaled $ 664.84. the above chart reflects that calculation as plead in the proposed Second Amended Com plaint. However, today, March 30 , 20 17, the exchange rate is $ 10 47.89. See http:/ / www.coindesk.com / price. Under either calculation, the proposed Second Amended Com plaint satisfies the jurisdictional am ount in controversy. 5 5 In light of the allegations set forth in the chart and the additional details provided in the proposed Second Am ended Com plaint, the Court is satisfied that it has diversity of citizenship subject m atter jurisdiction and the am endm ent is not futile. The Court need not address whether subject m atter jurisdiction is present. Plaintiffs m otion to am end is granted. III. Conclusion For the reasons stated above, the Motion to Am end is granted. An appropriate Order shall issue. Dated: March 30 , 20 17 _ s/ J oseph H. Rodriguez_ _ _ _ _ _ _ _ _ _ Hon. J oseph H. Rodriguez, UNITED STATES DISTRICT J UDGE 6