Mawson Infrastructure Group v. CleanSpark

Background

Mawson Infrastructure Group, Inc. and Luna Squares, LLC sued CleanSpark, Inc. and CSRE Properties Sandersville, LLC for breach of contract. The dispute concerns a Purchase and Sale Agreement under which Luna agreed to assign and sell its leasehold interests in property in Sandersville, Georgia, to CSRE. The Agreement included a $2 million “Megawatt Earnout” payable if CSRE received written confirmation reasonably acceptable to it that it could use at least an additional 150 megawatts of power on the property. The parties also agreed to use best efforts to obtain that confirmation.

Plaintiffs alleged that they provided written notice in December 2022, relying on letters concerning a planned substation and the availability of additional power. CleanSpark responded that the notice was not reasonably acceptable. Plaintiffs later renewed their demand, but Defendants did not pay. Plaintiffs also alleged that Defendants failed to use any efforts, much less their best efforts, to obtain the required confirmation. After an arbitration proceeding was dismissed because the arbitrator found the arbitration clause sufficiently ambiguous to deny jurisdiction, Plaintiffs filed this action.

Motion to Dismiss Standard

Defendants moved under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint states a legally plausible claim. At this stage, the court generally treats well-pleaded factual allegations as true and considers the complaint, attached exhibits, incorporated materials, and documents on which the complaint heavily relies.

Breach-of-Contract Theories

The court held that Plaintiffs plausibly stated a breach-of-contract claim based on Defendants’ rejection of the December 2022 notice. Under the Agreement, the confirmation had to be reasonably acceptable to CSRE. The court explained that contractual satisfaction provisions are generally judged by an objective reasonableness standard and must be applied consistently with the duty of good faith and fair dealing.

Considering the August and October 2022 letters together and drawing reasonable inferences for Plaintiffs, the court found it plausible that the parties anticipated completion of a substation that would provide the additional 150 megawatts. The letters therefore plausibly supported Plaintiffs’ allegation that their December 2022 notice was reasonably acceptable written confirmation under the Agreement.

The court also rejected Defendants’ arguments, at this stage, that the August letter was not addressed to them, predated the Agreement, or could not qualify as confirmation. The Agreement did not specifically require the confirmation to postdate the Agreement or to be addressed directly to Defendants. The court also declined to dismiss based on alleged delay or noncompliance with notice requirements, noting that Defendants did not assert that any such breach by Plaintiffs was material and that material breach is generally an affirmative defense unsuitable for resolution on a motion to dismiss.

The court separately found that Plaintiffs plausibly alleged a breach of the Agreement’s best-efforts requirement. Plaintiffs alleged that Defendants did not pursue the requested confirmation after rejecting the December 2022 notice. CleanSpark’s June 2023 email, including its explanation that the City had asked CleanSpark not to sign a power-service contract because doing so could harm the City’s negotiations with the Municipal Electric Authority of Georgia, also supported an inference that Defendants may not have acted in good faith in light of their capabilities.

The motion was denied as to both breach-of-contract theories.

Implied Covenant

Defendants argued that Plaintiffs may have intended to assert a separate claim for breach of the implied covenant of good faith and fair dealing. Because Plaintiffs did not respond to that argument, the court treated the issue as waived and dismissed the claim to the extent Plaintiffs intended to assert it.

Damages

The court granted the motion as to punitive damages. Plaintiffs did not oppose that request’s dismissal, and the court also found that Plaintiffs did not appear to allege an independent tort or a pattern of conduct directed at the public generally.

The court also granted the motion as to consequential damages. Plaintiffs sought lost profits, attorneys’ fees, costs, and expenses, but the court found that they had not adequately alleged that these particular damages were natural and probable consequences of the breach and were contemplated when the contract was made.

Leave to Amend and Disposition

The court allowed Plaintiffs to move for leave to file an amended complaint addressing the dismissed portions concerning the implied covenant, punitive damages, and consequential damages. Any such motion had to be filed within 30 days and comply with applicable rules. If Plaintiffs failed to file a timely motion, dismissal of those portions would be with prejudice. The court’s final disposition was that Defendants’ motion was granted in part and denied in part: it was granted as to the implied-covenant claim and the requests for punitive and consequential damages, and denied in all other respects. Judge Laura Taylor Swain also referred the case for general pretrial management after entry of the order.