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Gordon v. Dailey

United States District Court, D. New Jersey

March 30, 2017

BRANDON GORDON, et al., Plaintiffs,
v.
ZACHARY DAILEY and LAB RAT DATA PROCESSING, LLC., Defendants.

          OPINION

          HON. JOSEPH H. RODRIGUEZ, UNITED STATES DISTRICT JUDGE.

         This 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.

         In an 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.

         Here, 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.[1]

         I. Standard on Motion to Amend

         Federal 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 follows:

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 “freely given.”

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).

         Although 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[3], at 15-47 to -48 (3d ed. 2000)).[2] 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).[3] 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).

         II. Analysis

         The 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.”[4] 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 “dividends.”

         The 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. ΒΆΒΆ 24-31. Plaintiffs also set forth a calculation method and schedule of bitcoin purchases by each Plaintiff which includes ...


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