Bitcoin co-founder fails to convince court to entirely dismiss case

By Charmaine Little | Jan 17, 2019

MIAMI -- A co-developer of Bitcoin who faces a lawsuit managed to get only a portion of the case dismissed Dec. 27 in U.S. District Court for the Southern District of Florida.

Interestingly enough, it’s the brother (Ira Kleiman) of the other co-developer of Bitcoin (David “Dave” Kleiman) who filed the lawsuit against Craig Wright on behalf of Dave Kleiman’s estate. 

After Dave Kleiman and Wright created more than a million bitcoins together, they were stored in Bitcoin wallets, which Wright now owns after Dave’s 2013 death, which is the focus of the lawsuit. Before his death, Dave Kleiman and Wright also created W&K Info Defense Research LLC, which is also a plaintiff. Both plaintiffs say Dave Kleiman’s estate and W&K own the intellectual property that Kleiman created in his individual capacity and via W&K.

“Craig unlawfully and without permission took control of the bitcoins from the estate and from W&K once he had exclusive possession over the private keys necessary to own, move, or sell the bitcoins belonging to Dave and/or W&K,” the lawsuit alleges. It also accused Wright of transferring the alleged stolen bitcoins into trusts that he solely monitors and controls. The plaintiffs weren’t sure of how many stolen bitcoins are still out there under Wright’s control, but argue they are certain the estate is owed at least $300,000.

U.S. District Judge Beth Bloom   ICS Media Database

After a legal back and forth, Ira and W&K sued for conversion, unjust enrichment, breach of fiduciary duty, breach of partnership duties and loyalty of care, fraud, constructive fraud and permanent injunction. Wright moved for the court to dismiss. He argued the following grounds: lack of standing, failure to bring this as a derivative complaint, res judicata, forum non conveniens, beyond the statute of limitations, international abstention, lack of personal jurisdiction and the failure to legally state claims.

As for standing, Wright said W&K is the only plaintiff with standing since the amended complaint says Dave Kleiman’s business relationship was done via W&K, so the estate doesn’t have standing, and that the plaintiffs didn’t present a partnership between Wright and Kleiman from 2008 to 2011. 

The court disagreed. It pointed out that the amended complaint not only mentions that Wright and Dave Kleiman were co-owners of a business, but that the defendant admitted to being in a partnership with Kleiman. The amended complaint also says Wright and Kleiman were partners from 2008 through 2013 and lack of standing wasn’t enough to cause dismissal.

As for the derivative suit argument, while Wright said the lawsuit should have been a derivative suit, the court ruled Wright failed to give it any actual proof of how that would apply to this case. The court also denied the motion to dismiss on grounds of res judicata (an action that’s been resolved from a previous court and can’t be argued again by the same parties). 

Although the defendant argued res judicata, the court said it doesn’t apply in this case because that would overtake justice. For example, the plaintiffs said a previous lawsuit in Australia was sparked by Wright in his hope to urge the court to sign off on his plans with Dave Kleiman. Plus, the plaintiffs weren’t actually served in that lawsuit. Considering this, “it would be an injustice to the plaintiffs to allow the doctrine of res judicata to be invoked,” the court said.

As for forum non conveniens, Wright said that doctrine allows the court to decline exercising jurisdiction under certain circumstances, which the court said doesn’t apply in this case. Taking advantage of forum non conveniens would put too much of a burden on the forum the plaintiff has selected, the court ruled, meaning dismissal on this ground isn’t sufficient either.

The court also rejected the dismissal for international abstention, mainly because the lawsuits in Australia are closed and there is no other case that would cause the court to need to abstain.

Still, the defendant was authorized to raise the statute of limitations again in a motion for summary judgment if, during discovery, it becomes known that plaintiffs knew of the defendant’s alleged conduct more than four years before they filed the lawsuit. The court also dismissed the misappropriation claims for counts III and IV as the statute of limitations has run for those counts.

The entire motion to dismiss, heard by U.S. District Judge Beth Bloom, was granted in part and denied in part.

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