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My Retirement Account Services, LLC v. Alternative Ira Services, LLC

United States District Court, W.D. Kentucky, Paducah Division

October 17, 2019

MY RETIREMENT ACCOUNT SERVICES, et.al., PLAINTIFFS
v.
ALTERNATIVE IRA SERVICES, LLC, et al., DEFENDANTS

          MEMORANDUM OPINION

          Thomas B. Russell, Senior Judge United States District Court.

         This matter is before the Court on Defendants Alternative IRA Services, LLC, DitigalIRA.com LLC, Camilo Concha and Chris Kline's (“Defendants”) Motion to Dismiss for Failure to State a Claim Upon Which Relief May Be Granted, and Alternatively, Motion For More Definite Statement, [DN 5], and Defendants' Motion to Dismiss For Lack of Personal Jurisdiction or Alternatively, Motion to Transfer, [DN 6]. Plaintiffs responded to both motions, [DN 21], and Defendants replied, [DN 22]. This matter is ripe for adjudication. For the reasons stated herein: Defendants' Motion to Dismiss For Lack of Personal Jurisdiction is GRANTED and Defendants' Motion to Dismiss for Failure to State a Claim Upon Which Relief May Be Granted and Alternatively, Motion For More Definite Statement is DENIED AS MOOT.

         BACKGROUND

         The factual allegations, as set forth in the Complaint and presumed to be true at the motion to dismiss stage of litigation, are as follows.[1] Plaintiff My Retirement Account Services, LLC d/b/a Kingdom Services is a Kentucky limited liability company with its principle place of business in Murray, Kentucky. [DN 1 at 3]. Kingdom Services wholly owns and provides administrative services to Kingdom Trust, a South Dakota corporation with its principle place of business in Kentucky. Id. Kingdom Trust is a trust custodian holding various types of assets in individual retirement accounts (“IRA”) on behalf of its clients. Id. at 7. A portion of the assets held by Kingdom Trust are digital assets including cryptocurrencies. Id.

         Defendant Alternative IRA Services, LLC is a Delaware limited liability company with its principle place of business in Sherman Oaks, California. Id. at 3. Alternative IRA Services does business under several different names, including Digital IRA, Bitcoin IRA, Bitcoinira.com, and Digitalgold.com. Id. at 4. Defendant BitGo, Inc. is a Delaware corporation and its affiliate, BitGo Trust, is a South Dakota corporation. Id. Defendant Camilo Concha is the Chief Executive Officer of Bitcoin IRA and DigitalIRA.com and is a resident of California. Id. at 4. Defendant Chris Kline is the Chief Operating Officer of Bitcoin IRA and DigitalIRA.com and is a resident of California. Id. at 5.

         Beginning in early 2018, Kingdom Trust entered into an agreement with Bitcoin IRA pursuant to which Bitcoin IRA provided a technology platform allowing Kingdom Trust clients to buy and sell digital assets held in their IRAs. Id. at 8. Around this time, BitGo, Inc. and Kingdom Trust entered into a Merger Agreement and a Confidentiality Agreement. Id. at 9-10. However, in May 2018, BitGo, Inc. terminated the merger and the relationship between the companies dissolved. Id. at 10. In September 2018, Kingdom Trust and Bitcoin IRA entered into a Referral Agreement whereby Kingdom Trust paid a fee to Bitcoin IRA for each client referred to and accepted by Kingdom Trust from Bitcoin IRA. Id. Throughout the course of this relationship, the companies shared trade secrets, client lists, and other proprietary information with each another. Id. at 8-10.

         On May 7, 2019, DigitalIRA.com and its parent company, Digital Asset Group, LLC entered into a Third Party Administrator Engagement Agreement with BitGo Trust Company and BitGo Holdings, Inc. Id. at 13. Pursuant to this agreement, DigitalIRA.com would act as a third-party administrator to market and retail self-directed IRAs holding cryptocurrencies and other alternative assets held by BitGo Trust. Id. at 14. Plaintiffs claim that DigitalIRA.com, Bitcoin IRA, BitGo Inc., and BitGo Trust then “developed a plan to contact all Kingdom Trust clients with cryptocurrency assets in their IRAs and convert them to BitGo Trust clients.” Id.

         Beginning in June 2019, BitCoin IRA began sending letters, emails, and posting links on Bitcoin IRA's technology platform directing Kingdom Trust clients to upgrade their account. Id. at 18. However, Plaintiffs claim these efforts actually directed clients to an asset transfer form which clients could use to transfer their assets from Kingdom Trust to BitGo Trust. Id. As a result of Defendants' actions, Kingdom Trust claims it received approximately 665 transfer requests between June and August 2019. Id. at 19-26.

         Before transferring its clients' assets, Kingdom Trust claims it was required by federal and state law to perform due diligence on BitGo Trust and its relationships with service providers. Id. at 17. In response to Kingdom Trust's delay in executing the transfers, Defendant Concha sent Kingdom Trust a cease and desist letter demanding Kingdom Trust execute the transfers immediately. Id. at 19. Kingdom Trust also claims that BitGo Trust encouraged clients to contact South Dakota banking regulators and complain about the delay. Id. at 20. According to the Complaint, Defendants continued to contact Kingdom Trust clients and encourage them to transfer their assets to BitGo Trust until the current action was filed in August 2019.

         LEGAL STANDARD AND ANALYSIS

         I. Waiver of Personal Jurisdiction Defense

         First, the Court will address Defendants' Motion to Dismiss for Lack of Personal Jurisdiction. Plaintiffs claim that Defendants have waived their right to assert a personal jurisdiction defense pursuant to Federal Rule of Civil Procedure 12(h) because they previously filed a motion to dismiss for failure to state a claim. [DN 21 at 502]. In response, Defendants claim they have not waived their personal jurisdiction defense because the concurrently filed motion to dismiss for failure to state a claim incorporates their motion to dismiss for lack of personal jurisdiction. [DN 22 at 582]. Moreover, Defendants claim a waiver in this instance would be contrary to the purpose of Rule 12. Id.

         Federal Rule of Civil Procedure 12(b)(1) allows a defendant to challenge the court's personal jurisdiction. However, “[t]he ability to challenge personal jurisdiction is not indefinite and can be waived if not pled at the correct time.” Nat'l Feeds, Inc. v. United Pet Foods, Inc., 118 F.Supp.3d 972, 973 (N.D. Ohio 2015) (citing Gerber v. Riordan, 649 F.3d 514, 518 (6th Cir. 2011)). Rule 12(h) provides that “[a] party waives any defense listed in Rule 12(b)(2)-(5) by” omitting it from an earlier Rule 12 Motion. Fed.R.Civ.P. 12(h). Rule 12(b) includes motions to dismiss for lack of personal jurisdiction. Fed.R.Civ.P. 12(b). Accordingly, if Defendants filed a Rule 12 motion to dismiss for failure to state a claim upon which relief may be granted and omitted their personal jurisdiction defense, that defense would be waived by operation of Rule 12(h). See Means v. U.S. Conference of Catholic Bishops, 836 F.3d 643, 648-49 (6th Cir. 2016).

         However, the Sixth Circuit has noted that a party does not waive a defense under Rule 12(h) by failing to plead that defense with sufficient specificity. King v. Taylor, 694 F.3d 650, 657 (6th Cir. 2012) (collecting cases) (“See Mattel, Inc. v. Barbie-Club.com, 310 F.3d 293, 307 (2d Cir. 2002) (‘[T]o preserve the defense of lack of personal jurisdiction, a defendant need only state the defense in its first responsive filing and need not articulate the defense with any rigorous degree of specificity.'); compare United States v. Ziegler Bolt & Parts Co.,111 F.3d 878, 880, 882 (Fed. Cir. 1997) (defendant's assertion in his answer that the complaint was ‘barred because of insufficient service of process' was adequate to preserve the defense at the outset); and Holzsager v. Valley Hosp., 646 F.2d 792, 795-96 (2d Cir. 1981) (answer's assertion that the district court ‘lacked jurisdiction over the person of the defendant' was ...


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