Rostami v. HyperNet Inc.
| Decision Date | 29 March 2023 |
| Docket Number | 22-cv-01813-EJD |
| Parties | ROMEIN ROSTAMI, Plaintiff, v. HYPERNET INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS AND DENYING AS MOOT PLAINTIFF'S ADMINISTRATIVE MOTION TO STRIKE STATEMENT OF RECENT DECISION
Plaintiff Romein Rostami (“Plaintiff”) brings this action against Hypernet Inc. (“Hypernet”), Hypernet Labs Inc. (“HLI”), Ivan Ravlich, Daniel Maren, and Todd Chapman (with Ravlich and Maren, the “Individual Defendants,” and collectively with Hypernet and HLI “Defendants”), asserting claims for fraudulent inducement, unjust enrichment, breach of the implied covenant of good faith and fair dealing, civil conspiracy, and alter ego liability. ECF No. 1 (“Compl.”). Pending before the Court are (1) Hypernet's Motion to Dismiss or in the Alternative, to Compel Arbitration; (2) HLI and the Individual Defendants' Motion to Dismiss or, in the Alternative, to Compel Arbitration (with Hypernet's Motion, the “Motions”); and (3) Plaintiff's Administrative Motion to Strike Defendants' Unauthorized Statement of Recent Decision. ECF Nos. 36 (“Hypernet Mot.”), 40 (“HLI/ID Mot.”), 64. The Court finds the pending motions appropriate for decision without oral argument pursuant to Civil Local Rule 7-1(b). For the reasons discussed below, the Court GRANTS the Motions without leave to amend, DENIES AS MOOT the Administrative Motion, and dismisses the action without prejudice.
At the pleading stage, the Court accepts as true all well-pleaded factual allegations and construes them in the light most favorable to the plaintiff. Carijano v. Occidental Petrol. Corp., 643 F.3d 1216, 1222 (9th Cir. 2011) (accepting facts alleged in complaint as true in evaluating motion to dismiss for forum non conveniens); Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011) (). The following facts derive from the allegations in the Complaint.[1]
Defendant Hypernet is a start-up technology company that described its business plan as the creation of a computing network-the “Hypernet Protocol” or “Hypernet Platform”-capable of providing “true parallel computing” as a public resource via a decentralized platform that would connect buyers and sellers of computing power. Compl. ¶¶ 2-3, 35. Hypernet was incorporated in the Cook Islands, with its headquarters and principal place of business in Palo Alto, California. Id. ¶¶ 7(i), 11; Ex. A at 2.[2] The Cook Islands Ministry of Justice does not have a record of the formation or current registration of Hypernet. Compl. ¶ 12. HLI is a Delaware corporation, with its headquarters and principal place of business in Palo Alto, California. Id. ¶ 13. Ravlich, Maren, and Chapman all reside in California and serve or served as, respectively, HLI's chief executive, financial, and technical officers. Id. ¶¶ 14-16. The Individual Defendants are also alleged to be co-controllers and co-principals of Hypernet. Id.
In the summer of 2018, Hypernet offered for purchase the future right to as-yet-undeveloped cryptocurrency tokens (“Hyper Tokens”) to fund the development of the Hypernet Platform. Compl. ¶¶ 3, 22. In general, cryptocurrency tokens, or coins, are virtual products that may entitle holders to certain rights related to an underlying venture, such as rights to profits, share of assets, rights to use certain services provided by the issuer, and voting rights. Id. ¶ 23.
Additionally, there exist online markets where holders can exchange cryptocurrency tokens for fiat currencies (e.g., U.S. dollars) or other virtual currencies. Id. Hypernet's Hyper Tokens were to be the currency for purchasing computing power on the Hypernet Platform and a vehicle entitling holders to vote on upgrades or changes to the Hypernet Protocol. Id. ¶¶ 29, 35.
Hypernet sold future rights to Hyper Tokens in exchange for U.S. dollars, Bitcoin or Ethereum, of which the latter two are virtual currencies. Compl. ¶¶ 19, 25. The vehicles for these sales were purchase agreements referred to as Future Token Interest Subscription Agreements (“TSAs”). Id. ¶ 25. On July 25, 2018, Plaintiff-a U.S. citizen residing in Puerto Rico-entered into two separate TSAs with Hypernet. Id. ¶¶ 10, 28; see Ex. A. at 2-57, 58-113. The sale price under the first TSA was $84,346 U.S. dollars, and the price under the second TSA was $254,902. Ex. A at 57, 113. Plaintiff paid the total of $339,248 by transferring 728 Ethereum cryptocurrency tokens to Hypernet. Id. at 55-57, 111-113; Compl. ¶ 4. The TSAs, including the Confidential Interest Statement accompanying each agreement, stated the following: “The Hypernet may not be successfully developed or launched and Purchasers may not receive tokens”; “It is possible that the Tokens and the Hypernet may never be launched and there may never be an operational Token;” and “Purchasers should be aware that they will be required to bear the financial risks of this purchase for an indefinite period of time.” Ex. A. at 4, 16, 60, 72. The TSAs also each contained a clause providing:
All rights and obligations hereunder will be governed by the laws of the Cook Islands, without regard to the conflicts of law provisions of such jurisdiction. The Purchaser hereby irrevocably agrees that all actions arising directly or indirectly as a result or in consequence of this TSA of the Tokens shall be instituted and litigated only in courts having situs in the Cook Islands and the Purchaser hereby consents to the exclusive jurisdiction and venue of any court of competent jurisdiction in the Cook Islands. The Purchaser hereby waives any objection based on forum non conveniens, and the Purchaser hereby waives personal service of any and all process.
Id. 52-53, 108-109. In total, investors paid about $20 million worth of U.S. dollars to fund Hypernet and purchase future rights to Hyper Tokens. Compl. ¶¶ 4, 27, 53.
On March 22, 2022, Plaintiff filed this action seeking the return of 728 Ethereum cryptocurrency tokens, alleging that Defendants never intended to produce a viable platform or the Hyper Token. Id. ¶¶ 1, 27. As of the filing of the Complaint, the Hypernet Platform had not been created and no Hyper Tokens had been issued. Id. ¶ 47.
On January 10, 2023, Defendants filed a statement of recent decision in support of their Motions and submitted a copy of an order in Rostami v. Open Props, Inc., S.D.N.Y. No. 1:22-cv-03326-RA. ECF Nos. 63, 63-1. On January 20, 2023, Plaintiff filed an administrative motion to strike the statement of recent decision as improper under Civil L.R. 7-3. ECF No. 64.
“[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens.” Atl. Marine Constr. Co., Inc. v. U.S. D. for W.D. of Tex., 571 U.S. 49, 60 (2013). The Supreme Court further held in Atlantic Marine that “courts should evaluate a forum-selection clause pointing to a nonfederal forum in the same way that they evaluate a forum-selection clause pointing to a federal forum” under 28 U.S.C. § 1404(a). Id. at 61. Under that analysis, “[w]hen the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.” Sun v. Advanced China Healthcare, Inc., 901 F.3d 1081, 1087 (9th Cir. 2018) (quoting Atl. Marine, 571 U.S. at 62); see also Adema Techs., Inc. v. Wacker Chem. Corp., 657 Fed.Appx. 661, 662 (9th Cir. 2016) () (citation omitted). The threshold step of the analysis is therefore to determine the validity of the forum selection clause at issue. See Atl. Marine, 571 U.S. at 62 n.5 ().
“[T]he Supreme Court did not answer [in Atlantic Marine] whether state or federal law governs the validity of a forum-selection clause.” DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F. 4th 956, 963 n.4 (9th Cir. 2022). Although the Ninth Circuit has held that there are circumstances under which state law governs the threshold question of validity, such as where a state statute voids the forum selection clause at issue, Id. at 964, it has repeatedly held both before and after Atlantic Marine that federal law governs the validity of forum selection clauses. See, e.g., Lewis v. Liberty Mut. Ins. Co., 953 F.3d 1160, 1164 (9th Cir. 2020) () (citation omitted); Spradlin v. Lear Siegler Mgmt. Servs. Co., Inc., 926 F.2d 865, 867 (9th Cir. 1991) (“Federal law governs the validity of a forum selection clause.”); (TAAG Linhas Aereas de Angola v. Transamerica Airlines, Inc., 915 F.2d 1351, 1353 (9th Cir. 1990) (same). Further, the DePuy court expressly reserved the question of whether state law would govern the validity of a forum selection clause that had not been voided. 28 F. 4th at 964 n.6. Because there are no circumstances here that are similar to the state labor statute voiding the forum selection clause in DePuy,[3] and in light of the remaining Ninth Circuit authority on the issue, the Court will apply federal law to the question of validity of the forum selection clause.[4]
Under federal law, “[f]orum selection clauses are prima facie valid.” Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 (9th Cir. 1988) (citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972); see also In...
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