Blockchain Mining Supply and Services Ltd. v. SUPER CRYPTO MINING

Background

Blockchain Mining Supply and Services Ltd. sued Super Crypto Mining, Inc. and DPW Holdings, Inc. for breach of contract and promissory estoppel. According to the First Amended Complaint, Super Crypto agreed to buy 1,100 cryptocurrency-mining machines and 1,100 power-supply units for $3,272,500. Super Crypto paid for and received the first 500 machines, but the defendants did not pay the remaining balance for the other 600 machines. The plaintiff alleged that the defendants repeatedly assured it that payment was imminent and that it would complete the purchase. The plaintiff later resold the remaining machines for $168,000 and sought $1,388,495, representing the alleged difference between the contract price and resale price.

Defendants’ Motion

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), arguing that the court lacked personal jurisdiction over DPW, and under Rule 12(b)(6), arguing that the plaintiff failed to state legally sufficient claims. The defendants argued that the plaintiff had not shown that Super Crypto was DPW’s alter ego and that the promissory-estoppel claim was duplicative of the contract claim and barred by New York’s Statute of Frauds.

Personal Jurisdiction and Alter-Ego Theory

The court held that Super Crypto was subject to the court’s jurisdiction under the contract’s forum-selection clause. It also concluded that the plaintiff had alleged and supported enough facts to treat Super Crypto as DPW’s alter ego under Delaware law. An alter ego is a company so closely connected to another entity that the law may treat them as one for a particular issue.

The court applied the two-part test requiring a showing that the parent and subsidiary operated as a single economic entity and that respecting their separate corporate identities would create overall unfairness or injustice. The court cited allegations and jurisdictional-discovery evidence that Super Crypto was inadequately capitalized, remained insolvent, received funds from DPW that it was not required to repay, and eventually appeared to have its finances controlled by DPW. The court also relied on evidence that DPW and Milton “Todd” Ault III controlled negotiations, approved payments, and directed Super Crypto’s dealings with Blockchain.

The court further held that the forum-selection clause applied to DPW because DPW was closely related to the dispute through its alleged alter-ego relationship with Super Crypto. The court therefore concluded that it could exercise personal jurisdiction over DPW. It did not address the plaintiff’s additional arguments based on DPW’s alleged department status and contacts, or the defendants’ other personal-jurisdiction arguments.

Promissory Estoppel

The court held that the plaintiff could plead promissory estoppel as an alternative to breach of contract. Although a plaintiff cannot obtain recovery under both theories for the same obligation, the theories may coexist in the pleadings when the contract’s validity or scope remains disputed. The court noted that the defendants might rely on a contract provision stating that the agreement would become void if Super Crypto did not pay the final balance by April 18, 2018. The plaintiff’s allegations that the defendants later promised to pay could therefore support an alternative quasi-contract claim at the pleading stage.

The court also rejected the argument that New York’s Statute of Frauds barred the promissory-estoppel claim. That statute generally requires a signed writing for a special promise to pay another person’s debt. Because the court had determined for purposes of the motion that Super Crypto and DPW were alter egos, it concluded that the promise could be viewed as a promise to pay DPW’s own obligation rather than another person’s debt. The court therefore held that the Statute of Frauds did not apply and did not reach the defendants’ remaining Statute of Frauds arguments.

Finally, the court found that the plaintiff adequately pleaded promissory estoppel by alleging a clear promise to pay for the remaining machines, reasonable reliance on those promises, and injury from reselling the machines below the contract price. The court stated that it was premature at the pleading stage to resolve questions about the validity or scope of the contract.

Disposition

The court denied the defendants’ motion to dismiss. It ordered the parties to submit a status report within two weeks and directed the Clerk of Court to terminate the motion at docket entry 73.