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Morici v. Hashfast Technologies LLC

United States District Court, N.D. California, San Jose Division

February 27, 2015

PETE MORICI, Plaintiff,
v.
HASHFAST TECHNOLOGIES LLC, et al., Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS Re: Dkt. No. 34

EDWARD J. DAVILA, District Judge.

This action is about Bitcoin[1] and "Baby Jets." Plaintiff Pete Morici ("Plaintiff") alleges that he placed an order with Defendants Hashfast Technologies LLC and/or Hashfast LLC (the "Hashfast Entities") for two Bitcoin mining computers, fittingly named "Baby Jets, " but did not receive them when promised. When he finally did receive a shipment, he was no longer interested in "Baby Jets" and requested a refund. He did not receive one, though, because he would not sign a release.

Plaintiff filed the Complaint underlying this case on January 7, 2014, against the Hashfast Entities and its officers, Simon Barber ("Barber") and Eduardo deCastro ("deCastro")[2] for breach of contract, fraud, violation of the Unfair Competition Law ("UCL"), California Business and Professions Code § 17200, and declaratory relief. Presently before the court is a Motion to Dismiss filed by Barber and deCastro.[3] See Docket Item No. 34. Plaintiff has filed written opposition to the motion. See Docket Item No. 35.

Federal jurisdiction arises under 28 U.S.C. § 1332. Having carefully reviewed the parties' arguments, the court finds this matter suitable for decision without oral argument pursuant to Civil Local Rule 7-1(b). The hearing scheduled for March 5, 2015, will therefore be vacated and the Motion to Dismiss will be granted for the reasons explained below.

I. FACTUAL BACKGROUND

Plaintiff is a resident of Maryland and, importantly for this lawsuit, is a member of the Bitcoin community. See Compl., Docket Item No. 1, at ¶¶ 1, 15. So are Barber, deCastro, and the Hashfast Entities. Id. at ¶ 15. They develop specialized computers to conduct Bitcoin mining. Id. at ¶ 13.

In conjunction with their enthusiasm for Bitcoin, Plaintiff and Defendants were participants in an internet message board knowns as Bitcoin Talk. Id. at ¶ 15. Starting in July, 2013, Defendants made several posts about their soon-to-be-launched Bitcoin mining computer (the aforementioned "Baby Jet"), and further posted, on August 5th and August 8, 2013, that they would begin shipping the product in October, 2013. Id. at ¶¶ 16-17.

On August 10, 2013, Plaintiff visited Defendants' website and decided he wanted to purchase a "Baby Jet" after viewing the computer's technical specifications. Id. at ¶ 19. He relied on a statement on the website which listed the "Baby Jet" model as "in stock, " and noted that shipments of the product would begin "October 20-30." Id. at ¶ 20. Since the website could not process orders electronically, Plaintiff ended up placing an order manually during which process he was assured that the October, 2013, delivery dates were "firm." Id. at ¶¶ 22-23. He ordered two "Baby Jets" for a total transaction cost of $11, 507.38. Id. at ¶ 23. Plaintiff paid a deposit of 110.647885 BTC that same day. Id. at ¶ 26.

Plaintiff explains that the delivery date of the "Baby Jet" was crucial due to how Bitcoin works. Bitcoin miners are incentivized to process payment transactions "by allowing miners to create new Bitcoins for themselves based on the number of blocks' discovered." Id. at ¶ 11. "Blocks are files containing data regarding Bitcoin transactions that have yet to be recorded in the public ledger, " and are discovered by "calculating a SHA256 hash, an algorithm that is very difficult to solve, over and over again until the miner finds an input that matches an expected output." Id . Since a miner's chances of discovering a Bitcoin relative to another miner is "based on the miner's hash rate relative to the total hash rate of all Bitcoin miners on the network, " miners are continuously seeking to increase their rate of processing through acquisition of the latest technology. Id . However, because the "difficulty of Bitcoin mining is continually adjusted based on the rate at which blocks are created, " "a Bitcoin mining computer continually becomes less valuable over time, as it becomes relatively less efficient at processing Bitcoin blocks." Id. at ¶ 12. "Eventually, without upgrading technology, the electricity required for processing will cost a miner more than the Bitcoin computer is able to generate." Id.

Despite previous reassurances, Defendants informed Plaintiff on October 23, 2013, that his order would be delayed. Id. at ¶ 39. On November 7, 2013, Defendants told Plaintiff that his order would be delayed further and would not be shipped until mid-December. Id. at ¶ 41. In response, Plaintiff notified Defendants on November 11, 2013, that he was cancelling his order, and requested a full refund of his deposit in Bitcoin. Id. at ¶ 43. Defendants did not respond to Plaintiff's notification until over a month later. Id. at ¶ 44.

On December 27, 2013, Defendants sent an email to customers stating that "Baby Jet" shipments were "on track" for December 31st, but that customers interested in a refund "could initiate refunds and be paid Bitcoin calculated at the exchange rate on the date of the refund." Id. at ¶ 45. This statement surprised Plaintiff, since Defendants had previously represented that refunds would be paid in Bitcoin. Id. at ¶¶ 25, 45.

On December 31, 2013, Defendants sent another email to Plaintiff stating it still would not be able to fulfill his order until a later date. Id. at ¶ 46. Attached to the email was a "detailed and onerous" release that had to be completed in order to obtain a refund. Id. at ¶ 47.

Defendants eventually did send a shipment to Plaintiff, which he alleges was partial and "too late." Id. at ¶ 48. He therefore refused it and ...


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