Bitcoin ‘BabyJet’ Claims Survive Dismissal Bid

SAN JOSE, Calif. (CN) - A manufacturer specializing in bitcoin computer hardware cannot duck claims it lured consumers into paying for equipment that did not yet exist, a federal judge has ruled.

Plaintiff Pete Morici, a bitcoin "miner," says he paid the equivalent of about $11,000 for specialized hardware, called "BabyJets," used to mine the digital currency.

He says the defendants knew they could not meet the promised delivery dates but lied about it, hoping to raise enough money from online sales to complete development and manufacturing of the hardware.

Morici sued HashFast Technologies, HashFast LLC, CEO Eduardo deCastro and chief technology officer Simon Barber, alleging fraud and breach of contract.

"HashFast was capitalized with a total of $641,643, a number that was totally inadequate to undertake production and development of bitcoin mining equipment (which would cost several millions of dollars)," according to Morici's 22-page complaint. "However, Barber and deCastro sought to solicit customer orders for bitcoin equipment, and using the funds received from customers, pay vendors and other third parties who would ultimately produce the machines. Barber and deCastro caused HashFast to engage in an extensive marketing campaign promising delivery of BabyJet machines by dates certain, knowing that they could not meet the delivery deadlines for the machines."

Morici sued the defendants in January 2014, filing an amended complaint in February 2015. The defendants filed a motion to dismiss the following month, arguing the plaintiff failed to plead a sufficient claim for fraud.

U.S. District Judge Edward Davila explained that "the shipping date was important to plaintiff because 'bitcoin mining computers lose their value at a rapid rate due to the fact that more powerful computers are needed to effectively 'mine' for bitcoins as time goes on."

He said Morici provided sufficient evidence in his second amended complaint to show that Barber and deCastro knew they could not meet the shipping dates, supporting his fraud claim.

"Plaintiff's reliance on Barber's statement was justifiable since he was not aware of any contradictory shipping or production information at the time he placed the order," Davila wrote in a 14-page order. "Plaintiff suffered damages because he did not receive the BabyJets - machines that lose value at a rapid rate - within the timeframe promised."

Davila granted Barber's motion for dismissal of the fraud claim over his allegedly fraudulent online statement that the BabyJets were "in stock" because "a plain reading of plaintiff's allegations suggest that someone other than Barber was responsible for the content on the website, namely deCastro."

Davila, however, rejected all of the defendants' other motions, including dismissal of the unfair competition claim.

"Dismissal of the UCL claim is not appropriate solely because each of the statute's many remedies may not be imposed on Barber," Davila wrote. "With regard to restitution against Barber individually, plaintiff contends that Barber personally benefitted from the unlawful business practices by taking salary bonuses from the proceeds received on undelivered BabyJet orders. Again, although the allegations may ultimately prove untrue, that determination must wait for another day."

Davila concluded that "plaintiff has sufficiently pleaded a UCL claim against Barber" and also found "the fraud claim sufficient insofar as it is based on statements Barber made regarding the BabyJet shipping date and the availability of refunds in bitcoin. Plaintiff's allegations, however, do not support liability against Barber for statements describing whether BabyJets were 'in stock.'"

Defendants' attorneys, Jeremy Gray and Michael Resnick of Zuber Lawler & Del Duca in Los Angeles, did not immediately return a phone call.

Plaintiff attorney Venkat Balasubramani in Seattle was not available for comment on Monday.

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