Wu v. Bitfloor, Inc.
| Decision Date | 15 May 2020 |
| Docket Number | No. 19-CV-238 (RA),19-CV-238 (RA) |
| Citation | 460 F.Supp.3d 418 |
| Parties | Vincent WU, Dylan Arana, Griffin Branham, Keith Dezmin, Phil May, Daniel McBride, Jeff O'Toole, Adam Pattachiola, Seong-Youp Suh, John Twigg, Thomas Weiland and Kelly Williams Schell, Plaintiffs, v. BITFLOOR, INC. and Roman Shtylman, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Martin Mushkin, Law Offices of Martin Mushkin, Stamford, CT, for Plaintiffs.
Brian Edward Klein, Donald R. Pepperman, Teresa Huggins, Baker Marquart LLP, Los Angeles, CA, Gabriel Hertzberg, Grady Reeder Campion, Curtis, Mallet-Prevost, Colt & Mosle, LLP, New York, NY, for Defendants.
INTRODUCTION
Plaintiffs Vincent Wu, Dylan Arana, Griffin Branham, Keith Dezmin, Phil May, Daniel McBride, Jeff O'Toole, Adam Pattachiola, Seong-Youp Suh, John Twigg, Thomas Weiland, and Kelly Williams Schell brought this action against Defendants Bitfloor, Inc. and Roman Shtylman, alleging that Defendants committed commodities fraud in violation of Section 6(c)(1) of the Commodities Exchange Act ("CEA"), 7 U.S.C. § 9(1), and Regulation 180.1(a) thereunder, 17 C.F.R. § 180.1(a), in addition to violating New York State law.
Plaintiffs, all customers of Bitfloor, allege that Defendants made false or misleading statements and omissions regarding Bitfloor's operations and that reliance on those statements and omissions caused Plaintiffs to suffer economic losses.
Before the Court is Defendants’ motion to dismiss Plaintiffs’ First Amended Complaint ("FAC") pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6). In light of the fact that Plaintiff's CEA claim is time-barred, the motion is granted.
Except where otherwise noted, the following facts are drawn from Plaintiffs’ FAC, the documents attached thereto, and the documents incorporated by reference. See Faber v. Metro. Life Ins. Co. , No. 08 Civ. 10588 (HB), 2009 WL 3415369, at *1 n.1 (S.D.N.Y. Oct. 23, 2009) (), aff'd , 648 F.3d 98 (2d Cir. 2011). These facts are assumed to be true for purposes of this motion. See Myun–Uk Choi v. Tower Research Capital LLC , 890 F.3d 60, 65 (2d Cir. 2018).
Bitfloor is a New York corporation with its principal place of business in New York.1 FAC, Dkt. 45, ¶ 13. Bitfloor was incorporated in 2011 as an online exchange platform where customers could trade virtual currencies, including Bitcoin. Id. ¶¶ 18-19. Customers could buy and sell Bitcoin through Bitfloor, but could also hold their Bitcoin (and other currencies, including traditional fiat currencies) in digital "wallets" that functioned similarly to bank accounts. Id. ¶¶ 20-21. Bitfloor charged customers fees for its services. Id. ¶ 21. Shtylman owns, operates, and controls Bitfloor as its Chief Executive Officer. Id. ¶ 14.
Plaintiffs are residents of New York, other states, Canada, and the United Kingdom. Id. ¶¶ 1-12. Plaintiffs "bought, sold, and held bitcoin at Bitfloor from time to time." Id. ¶ 21. Plaintiffs allege that they presently "hold" various amounts of Bitcoin in their Bitfloor wallets that they are "not able to access or sell." Id. ¶¶ 1-12.
By June 2012, Bitfloor had grown to become the fourth-largest Bitcoin exchange in the world. Id. ¶ 33; FAC Ex. 1 ("Bitcoin Magazine Report") at 1. However, on April 19, 2013, Bitcoin Magazine reported on an announcement by Shtylman (the "2013 Shutdown Announcement") that Bitfloor would "cease all trading operations indefinitely." Bitcoin Magazine Report at 2.2 The 2013 Shutdown Announcement stated that Bitfloor's closure was due to the closure of its U.S. bank account by its banking partner, Capital One, which meant that it could "no longer provide the same level of USD deposits and withdrawals as [it had] in the past." Id. Accordingly, the 2013 Shutdown Announcement stated that "[o]ver the next days" Bitfloor would "be working with all clients to ensure that everyone receives their funds." Id.
Plaintiffs allege that they did not receive any notice from Bitfloor concerning the 2013 Shutdown Announcement and that they are not aware of any other Bitfloor customer who received such notice directly from Bitfloor. FAC ¶ 28. In addition, Plaintiffs allege that "Defendants did not return the phone calls from the Plaintiffs," although they do not plead any facts regarding the dates of or circumstances surrounding those purported phone calls. Id. ¶ 31. Plaintiffs further allege that Defendants "deliberately closed their site making it impossible for Plaintiffs to contact Defendants and/or recover their property." Id. ¶ 34.
On January 10, 2018, Shtylman, through his prior counsel, submitted a letter to the New York Department of Financial Services ("NYDFS") in response to a consumer complaint made to NYDFS regarding "Bitfloor.com." FAC ¶ 32; FAC Ex. 2 ("Courtesy Letter") at 1.3 The Courtesy Letter stated:
Plaintiffs commenced this action by filing the initial complaint on January 11, 2019. Dkt. 4. Defendants moved to dismiss the initial complaint on April 16, 2019. Dkt. 22. After the parties completed briefing on Defendants’ motion to dismiss, Dkts. 29-31, the Court granted Plaintiffs leave to file an amended complaint and provided that the parties could file supplemental briefing on Defendants’ pending motion to dismiss, Dkt. 41. Plaintiffs filed the First Amended Complaint—the operative complaint in this action—on June 28, 2019. Dkt. 45. The parties then submitted supplemental briefing on Defendants’ motion to dismiss. Dkts. 46-48.
In the First Amended Complaint, Plaintiffs plead violations of the Commodities Exchange Act and the regulations promulgated thereunder, as well as various New York State statutory and common law claims including breach of contract, conversion, fraud, deceptive business practices in violation of New York State's General Business Statute § 349, breach of fiduciary duty, loss of opportunity, negligent misrepresentation, unjust enrichment, and bailment/constructive trust. See FAC ¶¶ 51-82.
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In making this determination, the Court must "accept[ ] all factual allegations as true, but ‘giv[e] no effect to legal conclusions couched as factual allegations.’ " Stadnick v. Vivint Solar, Inc. , 861 F.3d 31, 35 (2d Cir. 2017) (quoting Starr v. Sony BMG Music Entm't , 592 F.3d 314, 321 (2d Cir. 2010) ). Moreover, on a motion to dismiss, a court "may consider any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007).
Federal Rule of Civil Procedure 9(b) has a heightened pleading standard, requiring that a plaintiff alleging fraud "state with particularity the circumstances constituting" the alleged fraud. Fed. R. Civ. P. 9(b). "The Second Circuit has not decided whether, as a general rule, CEA claims are subject to the heightened pleading standard of Federal Rule of Civil Procedure 9(b)." Dennis v. JPMorgan Chase & Co. , 343 F. Supp. 3d 122, 176 n. 245 (S.D.N.Y. 2018) ; see also Sullivan v. Barclays PLC , No. 13-cv-2811 (PKC), 2017 WL 685570, at *30 (S.D.N.Y. Feb. 21, 2017) (). Courts in...
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