Christian v. Loyakk, Inc.

• Decision Date: 12 January 2023
• Docket Number: 22-CV-215-F
• Parties: NATHAN CHRISTIAN, Plaintiff, v. LOYAKK, INC., LOYAKK LTD., SALIM ALI, and SADIQ QUASIM, Defendants.
• Court: U.S. District Court — District of Wyoming

NATHAN CHRISTIAN, Plaintiff, v. LOYAKK, INC., LOYAKK LTD., SALIM ALI, and SADIQ QUASIM, Defendants.

No. 22-CV-215-F

United States District Court, D. Wyoming

January 12, 2023

OPINION AND ORDER ON MOTIONS TO DISMISS

NANCY D. FREUDENTHAL UNITED STATES SENIOR DISTRICT JUDGE

This matter is before the Court on the motions of Defendants Salim Ali, Loyakk, Inc. (referred to as “Loyakk U.S.”) and Sadiq Quasim (collectively, the “Movants”) to dismiss the claims against them. ECF 8, 9, 17. Plaintiff Nathan Christian opposes the motions. ECF 19, 20, 26. The Movants have replied. ECF 21, 22, 29, 32 (amended reply). The Court allowed Plaintiff to sur-reply to one of Quasim's reply arguments. ECF 33. For the reasons that follow, the Court grants in part and denies in part the motions.

I. Fact Allegations

This case centers around a “Strategic Advisor/Consultancy Services Agreement” (the “Agreement”) that Plaintiff entered into with Defendant Loyakk, Ltd. (“Loyakk U.K.”)^[1] as of April 14, 2018. ECF 1-2 at 40 (Complaint, Ex. 5). Plaintiff alleges that he is an advisor in the blockchain technology sector and an entrepreneur in the cryptocurrency industry. He is a United States citizen and lives in Laramie County, Wyoming.

A Bitcoin, Blockchain, and Cryptocurrencies

The Complaint uses the terms blockchain and cryptocurrency, and the Agreement refers to bitcoin - but none of the parties appear to define those terms. The Court takes judicial notice that

[w]hen using the capitalized term, one is referring to the Bitcoin software and the decentralized computer network (Bitcoin Network) of users running that software. The Bitcoin software and protocols (the source code) were first described in a white paper released in November 2008 by an author using the pen name Satoshi Nakamoto. ... Nakamoto's innovation spawned from an online community of computer scientists who studied cryptography and the application of the technology toward the creation of an efficient and verifiable digital asset (or virtual currency) system.

Kaye Scholer, An Introduction to Bitcoin and Blockchain Technology at 4 (February 2016), available at https://www.arnoldporter.eom/-/media/files/perspectives/publications/2015/ 10/fintech-an-intro-to-bitcoin-and-blockchain-tech.pdf?la=en, last accessed January 12, 2023 (note omitted, hereafter referred to as the Kaye Scholer Primer).

Unlike prior attempts to develop a digital asset, the technology proposed by Nakamoto did not rely on a centralized clearing house (a trusted third party) to verify money supply and transactions. Instead, the Bitcoin community progressively built out a decentralized network of computers that exert a tremendous amount of computing power toward the singular purpose of validating and clearing transactions on the Bitcoin Network.

Id. at 4, 6 (note omitted). “The distributed and decentralized network allows each individual user to verify the validity of individual transactions and the system, as a whole, through the cryptographic protocols and the transaction history of the Bitcoin Network, which is stored by each user on a distributed ledger known as the Blockchain.” Id. at 6.

The “Blockchain” represents the second great innovation from Nakamoto. As a distributed ledger, the Blockchain is stored locally on the computer hard drive of every user running a full version of the Bitcoin software. The ledger records the history of every transaction sent and confirmed on the Bitcoin Network, including information included as a part of those transactions.

Id. “Users running a special mining variant of the Bitcoin software expend great amounts of computing power in order to win the right to add another block to the Blockchain, which is accompanied by a reward of ... bitcoins.” Id.^[2]

The underpinning of the Bitcoin Network payment system is the little “b” bitcoin. The lowercase version of bitcoin references the core unit of value on the Bitcoin Network. A bitcoin can be subdivided to eight decimal places, with the smallest unit - a satoshi - having a value of 1/100,000,000th of a bitcoin. In sum, under the Bitcoin source code, a total of 21 million bitcoins will be created as mining rewards, distributed as compensation to miners in the process that adds blocks to the Blockchain.

Kaye Scholer Primer at 6-7.^[3] The abbreviation for bitcoin is BTC. https://en.wikipedia.org/wiki/Bitcoin, accessed January 12, 2023.

Bitcoin has developed beyond its initial use to “altcoins” and other programming platforms that add other features and capabilities. Id. at 8-9. Pertinent to this case is one in particular, Ethereum. The Ethereum platform is a so-called Bitcoin 2.0 or Blockchain 2.0 program “which seeks to create a Turing-complete programming framework supported by an independent altcoin platform.” Id. at 9. The native cryptocurrency for the Ethereum platform is Ether, abbreviated as ETH. https://en.wikipedia.org/wiki/Ethereum, last accessed January 12, 2023.^[4]

B. Plaintiff's Consulting Agreement

Under the Agreement, Loyakk U.K. was to pay Plaintiff for his services as follows:

The Company [Loyakk U.K.] shall pay to Consultant [Plaintiff] the sum of:

(a) 15 ETH paid within 3 (three) business days after end of Company's pre-ICO [(hereafter referred to as the “Pre-ICO Ether”)]

(b) 100 ETH, to be paid within 3 (three) business days after end of Company's ICO, [(hereafter, the “Post-ICO Ether”)] and

(c) 0.5% of total tokens (unrestricted) of the Company to Consultant upon Initial Coin Offering Date Completion [(hereafter, the “Post-ICO Percentage”)]. Other than payments under section (c) of this paragraph, all payments by Company to Consultant shall be made in BTC, ETH or fiat currency. Company acknowledges and agrees that Consultant expressly retains the right to refuse acceptance of any payment in a form other than cash.

ECF 1-2 at 47 (Ex. B of the Agreement). Plaintiff uses the terms “tokens” and “coins” interchangeably.

Plaintiff alleges that Loyakk U.K.'s pre-ICO sale began June 7, 2018 and ended on June 14, 2018. Complaint ¶ 20. The ICO began on June 15, 2018 and ended on October 31, 2018. Id. ¶¶ 22, 29. Plaintiff alleges he performed all of his obligations under the Agreement, and the last payment was due on November 3, 2018. Id. ¶ 30. He further alleges that he has not received any of the agreed-upon compensation.

The Agreement has a forum-selection clause that requires “any legal action ... arising out of or concerning this Agreement or any agreements or transactions contemplated hereby, including tort claims” to be brought in “the Courts of the State of Wyoming.” Id. at 43. The Parties to the Agreement (Plaintiff and Loyakk U.K.) “expressly submit to the personal jurisdiction and the venue of those courts.” Id. They also agreed that Wyoming law governs. Id.

C. The Defendants: Quasim, Loyakk U.K., Loyakk U.S., and Ali

Defendant Sadiq Quasim signed the Agreement on behalf of Loyakk U.K. ECF 12 at 45 (Complaint, Ex. 5). Quasim resides in the U.K. and had his principal place of business in London. He was the chief executive officer for Loyakk U.K. Loyakk U.K. was a “foreign corporation based primarily in the United Kingdom that operated in the cryptocurrency sector and the European affiliate of Loyakk U.S.” It had its principal place of business in London.

At various times, Quasim was also the chief executive officer, co-founder, director and advisor for Loyakk U.S. Complaint ¶ 6. Loyakk U.S. is a California corporation with its principal place of business in Sunnyvale, California. “Loyakk U.S. has been suspended by the California Franchise Tax Board since July 1, 2021, due to failure to meet its tax requirements.” Id. ¶ 2.

On information and belief, Loyakk U.S. purports to have developed a platform through which business enterprises could track user data on the blockchain improving transparency and compliance with General Data Protection Regulation (“GDPR”). [n.1] The propriet[ar]y software that Loyakk U.S. developed was called the Vega Enterprise Relationship Platform (“Vega Platform”).

Complaint ¶ 2. Thus, Plaintiff alleges that Loyakk U.S. developed the Vega Platform. Loyakk U.K. issued a cryptocurrency for that platform in an Initial Coin Offering, “ICO.”^[5]

“[An ICO] is the cryptocurrency industry's equivalent of an initial public offering, or ‘IPO.'” Id. ¶ 3, n.2 (citing Jake Frankenfield, “Initial Coin Offering,” Investopedia (July 7, 2022) https://www.investopedia.com/terms /i/initial-coin-offering-ico.asp). Thus, as the Complaint later alleges, the purpose of issuing the cryptocurrency was to “gain venture capital.” Complaint ¶ 4. In the Agreement's Post-ICO Percentage provision, “[a] portion of these tokens were promised as payment to Plaintiff for his services.” Id. ¶ 3.

Defendant Salim Ali is the chief executive officer and chief marketing officer of Loyakk U.S. He maintained his principal place of business in California. “Ali further maintained a managing and/or principal role at Loyakk U.K. . . . Ali was, at various times ... Chief Executive Officer, co-founder, director, and advisor of Loyakk U.K.” Id. ¶ 5.

D. Alter Ego Allegations

Plaintiff alleges that Loyakk U.K. and Loyakk U.S. are alter egos:

Loyakk U.S. and Loyakk U.K. (collectively Loyakk) were, at all times relevant to these proceedings, alter egos of one another in that they were related to each [other] by shareholdings, were under common ownership, confederated in their business affairs, or were otherwise controlled by Sadiq Quasim and Salim Ali.

Complaint ¶ 4. Plaintiff also points to Loyakk U.K. and Loyakk U.S. using for both companies the same brand, logo, white paper, marketing materials, addresses and website.

Plaintiff further alleges that Ali and Quasim functioned as “agents of each other and as varying...