United States District Court, D. New Jersey
JOSEPH H. RODRIGUEZ, UNITED STATES DISTRICT JUDGE.
matter is before the Court on Plaintiffs' Motion to Amend
and for leave to File a Second Amended Complaint [Dkt. No.
104]. Plaintiffs' motion was filed in response to the
Court's June 21, 2016 Order on Defendants' Motion to
Dismiss in which the Court dismissed the motion without
prejudice and ordered Plaintiffs to show cause why the case
should not be dismissed for want of subject matter
jurisdiction. See Dkt Nos. 98, 99. Plaintiffs submit
a proposed Second Amended Complaint which addresses some of
the Court's concerns related to the nature of the
property at issue: Bitcoins.
attempt to cure some of the inadequacies noted by the Court
as to the First Amended Complaint, Plaintiffs invoke both
federal question jurisdiction and diversity jurisdiction.
With respect to federal question jurisdiction, Plaintiffs
argue that although the LRM Bonds at issue are not bonds in
the traditional sense, they are investment contracts and
therefore meet the definition of a security pursuant to the
federal securities laws. Alternatively, Plaintiffs argue that
diversity of citizenship jurisdiction exists because the
parties are diverse and the amount in controversy exceeds the
jurisdictional threshold. In order to demonstrate that the
damages exceed $75, 000.00, Plaintiffs claim that they: 1)
gathered information related to each investment in the LRM
Bonds, 2) set forth all of the re-sales of the LRM bonds, 3)
described the dividends generated by the LRM Bonds, 4)
detailed historical and current exchange rates for bitcoins
in U.S. Dollars, and 5) calculated the current value of the
Bitcoin investments of each of the ten Plaintiffs.
the Court addresses whether the proposed Second Amended
Complaint sufficiently pleads federal subject matter
jurisdiction. The Court finds that diversity jurisdiction is
present and, therefore, leave to amend will be granted
because such an amendment is not futile.
Standard on Motion to Amend
Rule of Civil Procedure 15 (“Rule 15") encourages
and provides for a liberal policy for amending pleadings.
Under Rule 15(a), leave to amend pleadings “shall be
freely given when justice so requires.” In Froman
v. Davis, the Supreme court articulated the liberal
policy of allowing amendments underlying Rule 15(a) as
If the underlying facts or circumstances relied upon by a
plaintiff may be a proper subject of relief, he ought to be
afforded an opportunity to test his claim on the merits. In
the absence of any apparent or undeclared reasons-such as
undue delay, bad faith or dilatory motive on the part of the
movant, repeated failure to cure deficiencies by amendments
previously allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, futility of amendment,
etc.-the leave sought should, as the rules require, be
372 U.S. 178, 182 (1962); see also Shane v. Fauver,
213 F.3d 113, 115 (3d Cir. 2000). The Third Circuit has
elaborated on the proper analysis to apply:
The trial court's discretion under Rule 15, however, must
be tempered by considerations of prejudice to the non-moving
party, for undue prejudice is the “touchstone for the
denial of leave to amend.” . . . In the absence of
substantial or undue prejudice, denial must be grounded in
bad faith or dilatory motives, truly undue or unexplained
delay, repeated failure to cure deficiency by amendments
previously allowed or futility of amendment.
Heyl & Patterson Int'l, Inc. v. F.D. Rich Housing
of the Virgin Islands, 663 F.2d 419, 425 (3d Cir. 1981)
(citing Cornell & Co. v. Occupational Safety and
Health Review Comm'n, 573 F.2d 820, 823 (3d Cir.
1978); see also Bechtel v. Robinson, 886 F.2d 644,
652 (3d. Cir. 1989).
courts place a heavy burden on opponents of motions to amend,
it is well established that the futility of amendment is one
of the factors that may be considered by the Court in denying
a motion to amend. Froman, 371 U.S. at 182; see
also Fed. Deposit Ins. Corp. v. Bathgate, 27 F.3d 850,
874 (3d Cir. 1994); Averbach v. Rival Mfg. Co., 879
F.2d 1196, 1203 (3d Cir. 1989). “‘Futility'
means that the complaint, as amended, would fail to state a
claim upon which relief could be granted.”
Shane, 213 F.3d at 115. In assessing futility, a
district court must apply the same standard of legal
sufficiency that applies under Fed.R.Civ.P. 12(b)(6).
Id. (citing 3 Moore's Federal Practice, ¶
15.15, at 15-47 to -48 (3d ed. 2000)). Thus, if the
proposed amendment “is frivolous or advances a claim or
defense that is legally insufficient on its face, the court
may deny leave to amend. If a proposed amendment is not
clearly futile, then denial of leave to amend is
improper.” Wright, Miller & Kane, Federal Practice
and Procedure § 1487 at 637-642 (2d ed. 1990) (footnote
omitted). Finally, the Third Circuit has held that
an amendment is futile when the claims asserted by the
plaintiffs are time-barred under the state of limitations.
In re NAHC, Inc., Sec. Litig., 306 F.3d 1314, 1332
(3d Cir. 2002).
diversity statute provides, in relevant part, “[t]he
district court shall have original jurisdiction of all civil
actions where the matter in controversy exceeds the sum or
value of $75, 000, exclusive of interest and
costs.” In examining the First Amended Complaint
on the motion to dismiss, the Court concluded that it had no
way of determining whether the matter in controversy exceeds
$75, 000 because the First Amended Complaint did not allege a
dollar value associated with a Bitcoin at any given time,
much less during the relevant time period(s). See
June 21, 2016 Opinion and Order [Dkt. Nos. 98, 99]. In
addition, the Court was troubled by the lack of information
related to the nature of Bitcoins and how they function, the
number of Bitcoins each Plaintiff paid for the bonds and
whether the Defendants ever paid any Plaintiff any weekly
proposed Second Amended Complaint addresses these concerns.
In addition, proposed Second Amended Complaint includes an
explanation of the nature of Bitcoins and how they function.
See Proposed Sec. Amend. Comp. ¶¶ 24-31.
Plaintiffs also set forth a calculation method and schedule
of bitcoin purchases by each Plaintiff which includes ...