Rostami v. Hypernet Inc.

Background

Romein Rostami sued Hypernet Inc., Hypernet Labs Inc., Ivan Ravlich, Daniel Maren, and Todd Chapman. The complaint asserted claims for fraudulent inducement, unjust enrichment, breach of the implied covenant of good faith and fair dealing, civil conspiracy, and alter-ego liability.

According to the complaint, Hypernet planned to create a decentralized computing network called the Hypernet Protocol or Hypernet Platform. In 2018, Hypernet sold future rights to cryptocurrency tokens called Hyper Tokens through two Future Token Interest Subscription Agreements. Rostami entered into the agreements on July 25, 2018, and paid a total of $339,248 by transferring 728 Ethereum tokens. The agreements warned that the platform or tokens might never be launched and that purchasers would bear the financial risks indefinitely.

Rostami alleged that the defendants never intended to produce a viable platform or Hyper Tokens. When he filed the complaint, the platform had not been created and no Hyper Tokens had been issued. He sought the return of the 728 Ethereum tokens.

Motions and forum-selection provision

The defendants filed two motions to dismiss or, alternatively, to compel arbitration. They argued that the agreements required disputes to be litigated in the Cook Islands, required arbitration, and did not support a legally sufficient claim. Rostami also filed an administrative motion to strike a statement of recent decision submitted by the defendants.

Each agreement stated that Cook Islands law governed and that all actions arising directly or indirectly from the agreement or the tokens had to be instituted and litigated only in courts located in the Cook Islands. The court treated enforcement of that foreign-forum provision under the doctrine of forum non conveniens, which allows a court to dismiss a case when the parties agreed to litigate in a different, appropriate forum.

The court found that all of Rostami’s claims arose from the defendants’ alleged failure to create the Hyper Tokens and the platform. The claims therefore fell within the forum-selection provision.

Validity and enforceability

The court held that the forum-selection provision was presumptively valid and that Rostami had not met the heavy burden required to show fraud, overreaching, or excessive bargaining power. Rostami argued that the provision was buried in a lengthy electronic agreement, presented on a take-it-or-leave-it basis, and not specifically brought to his attention. The court rejected those arguments. It noted that the provision used the same font as the rest of the agreement, clearly identified the Cook Islands as the forum, and was not invalid merely because it appeared under a “Miscellaneous” heading or was accepted electronically.

The court also rejected Rostami’s argument that enforcing the provision would violate California’s public policy against unconscionable contract terms. It found little or no procedural unconscionability and no substantive unconscionability. In particular, Rostami had not shown that litigating in the Cook Islands would be so difficult that he would effectively lose his opportunity to pursue the case. The court also found that enforcement would not deprive him of his day in court.

The court considered public-interest factors, including court congestion, California’s local interest, and which forum was more familiar with the governing law. Court congestion was neutral. California had some interest because several defendants resided there and some alleged conduct likely occurred there, but that interest was reduced because Rostami resided in Puerto Rico. The court also noted that the agreements selected Cook Islands law. It concluded that this was not the rare case in which public-interest factors justified refusing to enforce a valid foreign-forum provision.

Unreached arguments and disposition

Because the court enforced the Cook Islands forum-selection provision, it did not reach the defendants’ alternative request to compel arbitration or their argument that the complaint failed to state a claim.

The court denied the defendants’ motions to the extent they were brought under Federal Rule of Civil Procedure 12(b)(3) or 28 U.S.C. § 1406(a), but evaluated the foreign-forum argument under forum non conveniens. It then granted the defendants’ motions to dismiss under that doctrine, without leave to amend. The complaint was dismissed without prejudice for Rostami to refile his claims against the defendants in the Cook Islands, and the clerk was directed to close the file.

The court also denied as moot Rostami’s administrative motion to strike the defendants’ statement of recent decision because that decision was irrelevant to the forum-selection issue. Judge Edward J. Davila signed the order on March 29, 2023.