BMA LLC v. HDR Glob. Trading
| Decision Date | 07 September 2021 |
| Docket Number | 20-cv-03345-WHO |
| Court | U.S. District Court — Northern District of California |
| Parties | BMA LLC, et al., Plaintiffs, v. HDR GLOBAL TRADING LIMITED, et al., Defendants. |
ORDER GRANTING MOTION TO DISMISS SECOND AMENDED CONSOLIDATED COMPLAINT WITH PREJUDICE RE: DKT. NOS. 155 174
BMA LLC, an entity that is co-owned by multiple individual traders, along with individual traders Vitaly Dubinin Yaroslav Kolchin, Dmitry Dolgov, and Paun Gabriel Razvan bring this consolidated action asserting market manipulation and fraudulent inducement theories, among other claims, against five defendants: HDR Global Trading Limited (“HDR”), which owns a cryptocurrency derivatives trading platform called Bitcoin Mercantile Exchange (“BitMEX”); HDR's wholly-owned subsidiary ABS Global Trading Limited (“ABS”); and, HDR's co-founders Arthur Hayes, Ben Delo, and Samuel Reed. When I granted defendants' motion to dismiss the Consolidated Complaint with leave to amend in March, I explained why plaintiffs' claims were not plausible and warned that the 237-page, 618-paragraph, 18-exhibit, 17-count Consolidated Complaint was hardly a “short and plain statement of the claim showing that the pleader is entitled to relief.” See Order Granting Motion to Dismiss Consolidated Complaint with Leave to Amend (“MTD Order”) [Dkt. No. 143]; Fed.R.Civ.P. 8. Yet despite the guidance provided in the MTD Order, plaintiffs responded with a 378-page, 1, 035-paragraph, 21-exhibit, 33-count Second Amended Consolidated Complaint (“SACC”) with the same deficiencies.
The size and prolix nature of the SACC alone are grounds for dismissal. But I have also searched for a plausible claim and cannot find one.[1]
To amend their price/market manipulation theory, plaintiffs largely copy and paste from a complaint in Messieh v. HDR Global Trading Ltd., No. 1:20-cv-03232-ALC, currently pending in the Southern District of New York. Messieh was brought by different plaintiffs and different plaintiffs' counsel against the same defendants. I will not consider those copied allegations, for which the Messieh court will determine plausibility. Plaintiffs' other allegations are insufficient for the same reasons identified in my previous order.
The new fraudulent inducement theory, which now appears to be the main focus of the SACC, is not supported by sufficient plausible facts either. Plaintiffs contend that they were fraudulently induced into participating on the BitMEX platform based on misstatements about BitMEX's alleged insider trading desk and the liquidity of its trading products. The first collapses with the insufficiently alleged market manipulation theory. It lacks specific facts showing that the Terms of Service's statement about the insider trading desk were false-that the alleged insider trading desk was engaging in manipulative conduct. Plaintiffs similarly fail to allege with particularity that the liquidity statement on the BitMEX website- - was false. Not only have plaintiffs failed to plausibly allege the falsity of the challenged statements, they do not plausibly connect their reliance on the alleged misrepresentations to their claimed bitcoin losses.
Failure to plausibly plead underlying misconduct-market manipulation and fraudulent inducement-dooms the SACC. In addition to this fundamental flaw, plaintiffs fail, again, to sufficiently plead the elements of each claim and their standing to bring them. After multiple iterations of the complaint and the benefit of my previous ruling, coupled with filing an unwieldly SACC that remains conclusory and copies allegations from another case, I find that leave to amend is not warranted. Defendants' motion to dismiss is GRANTED with prejudice.[2]
Plaintiff BMA originally filed this suit on May 16, 2020. After BMA amended once as a matter of right and a second time with defendants' consent (adding plaintiffs Kolchin and Dubinin), defendants moved to dismiss. That motion was denied as moot when this case was consolidated with another lawsuit plaintiffs' counsel filed in this District on October 14, 2020, Dolgov v. HDR Global Trading Ltd., No. 20-cv-07140. Plaintiffs were ordered to file a consolidated complaint, adding claims made by plaintiff Dolgov. Before doing so, plaintiffs' counsel filed another lawsuit in this District on November 13, 2020, Gabriel-Razvan v. HDR Global Trading Ltd., No. 3:20-cv-08034. I granted the parties' stipulation to allow plaintiffs to file a consolidated complaint that also included claims made by plaintiff Razvan. The Consolidated Complaint that was dismissd in the MTD Order in March 2021 included claims by all five plaintiffs.
On August 13, 2021, after briefing on defendants' motion to dismiss the SACC was complete, plaintiffs moved to relate yet another lawsuit their counsel filed in this District on May 12, 2021, about two months after I issued the MTD Order in this case, Sorokin v. HDR Global Trading Ltd., No. 21-cv-03576. Defendants did not oppose. The complaint in Sorokin is substantially similar to the SACC here. The Sorokin matter was related to this case on August 18, 2021.[3]
The above only reflects the cases that plaintiffs' counsel has filed in this District. Plaintiffs' counsel also filed a substantially similar lawsuit in San Francisco County Superior Court on May 19, 2020, a few days after this case was filed, Kanyshev v. HDR Global Trading Ltd., CGC-20-584483. The Hon. Anne-Christine Massullo issued a first demurrer order in Kanyshev on February 25, 2021 and a second demurrer order on August 27, 2021, giving the Kanyshev plaintiffs leave to amend again. Like the plaintiffs here, the Kanyshev plaintiffs added a new fraudulent inducement theory after the first demurrer order was issued.
The Southern District of New York Messieh suit was brought to my attention after the first motion to dismiss hearing in this case. Plaintiffs requested “coordination” between this suit and Messieh to avoid conflict, claiming that they are “members of the putative class” in Messieh. MTD Order at 2. The Messieh action “was filed before this suit against substantially the same defendants and brings class claims under the [Commodity Exchange Act] based on a significantly similar theory of price manipulation, albeit more detailed and supported by expert analysis.” Id. After granting defendants' motion to dismiss the Consolidated Complaint with leave to amend, I scheduled a case management conference on April 6, 2021 to discuss how this case should move forward in light of Messieh. Id.
Considering the parties' positions at the case management conference, I found that “the related Messiah matter appears narrower and less advanced than this case, and that at least for the moment coordination does not appear to be appropriate.” Minute Entry [Dkt. No. 146]. Now, several months later, motions to dismiss the Messieh Amended Complaint are fully briefed and ripe for decision by the Hon. Andrew L. Carter, Jr. of the Southern District of New York. That motion challenges the market manipulation allegations plaintiffs have copied here on several grounds, including plausibility.
Plaintiffs filed an Amended Consolidated Complaint [Dkt. No. 149], followed by a Corrected Amended Consolidated Complaint (“CACC”) a few hours after the amendment deadline [Dkt. No. 150]. The parties then stipulated to allow plaintiffs to file the operative SACC (Second Amended Consolidated Complaint) [Dkt. No. 153]. See Declaration of Stephen D. Hibbard in Support of Defendant's Motion to Dismiss Plaintiffs' Second Amended Consolidated Complaint (“Hibbard Decl.”) [Dkt. No. 155-1], Ex. A (redline comparison between CACC and SACC).[4]
Plaintiffs' market manipulation theory is summarized in my previous order, which largely stays the same in the SACC except for the copied Messieh allegations that I discuss below. The new fraudulent inducement allegations are summarized below as well. Plaintiffs drop their claims against the family members and associated companies of individual defendant Samuel Reed (Agata Maria Reed, Trace Reed, Barbara Reed, Mark Sweep LLC, Grape Park LLC, and “Unknown Exchange”) and now allege a total of thirty-three causes of action against the remaining five defendants (HDR, ABS, Hayes, Delo, and Reed): (i) violations of the Commodity Exchange Act (“CEA”) (Counts 1 through 8); (ii) violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act (Counts 9 through 14); (iii) common law fraud and negligent misrepresentation claims (Counts 15 through 20); (vi) statutory claims under California's False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §§ 17500, et seq., Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750, et seq., and Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq. (Counts 21 through 25); (v) negligence (Count 26); and (vi) various other state law claims for restitution, constructive trust, accounting, conversion, aiding and abetting conversion, replevin, and violation of California Penal Code section 496 (Counts 27 through 33).
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss if a claim fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the claimant must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible when the plaintiff pleads facts that “allow the court to draw the reasonable inference that the defendant is...
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