Bitcoin Company Skates – for Now

SAN JOSE (CN) - A Bitcoin miner must amend his claim that the founders of a San-Francisco based Bitcoin mining company misrepresented delivery dates, a federal judge ruled.

Pete Morici sued HashFast Technologies and its officers, Simon Barber and Eduardo deCastro, in January 2014, alleging breach of contract, fraud and unfair competition. He claimed they failed to ship two Bitcoin mining computers by a promised date.

U.S. District Judge Edward Davila dismissed the fraud and unfair competition claims against Barber and deCastro based on Morici's failure to distinguish their part in the transactions.

Morici lumped all of the defendants into one designation - "HashFast" - without differentiating the conduct attributable to each defendant, Davila found.

Barber and deCastro cannot both be held responsible for each and every statement ascribed to HashFast, Davila said.

Morici came into contact with HashFast in July 2013 through an Internet message board known as Bitcoin Talk. The company made several posts about its soon-to-be launched Bitcoin mining computer, called "Baby Jet," and said the product would begin shipping in October 2013.

After visiting HashFast's website and viewing the Baby Jet's technical specifications, Morici decided he wanted to buy one. He that the website listed the Baby Jet as "in stock" with shipments beginning "October 20-30."

Morici ordered two Baby Jets for $11,507, which he paid through a deposit of 110.647885 Bitcoins.

Bitcoin is a digital currency, not issued or regulated by any government, that can be traded or used to purchase goods or services anonymously. People can buy Bitcoins or accumulate them through "mining," in which users solve math equations to record transactions in the electronic currency.

It becomes more difficult to mine for Bitcoins with each transaction, due to the system's built-in protocol for "proof-of-work."

Because "the 'difficulty of Bitcoin mining is continually adjusted based on the rate at which blocks are created,' 'a Bitcoin mining computer continually becomes less valuable over time, as it becomes relatively less efficient at processing Bitcoin blocks.' 'Eventually, without upgrading technology, the electricity required for processing will cost a miner more than the Bitcoin computer is able to generate,'" according to Judge Davila's recap of the lawsuit.

Therefore, the delivery date of the Baby Jet was crucial, Morici said.

Morici was told on Oct. 23 and again on Nov. 7 that his order would be delayed, prompting him to cancel it and ask for a full refund of his deposit in Bitcoin.

A month later, HashFast responded with an email sent to customers stating that Baby Jet systems were "on track" for Dec. 31, but that customers interested in a refund could be paid Bitcoin calculated at the exchange rate on the date of the refund, according to the recap.

An email on Dec. 31 stated that HashFast would still not be able to fulfill Morici's order and included a release he had to complete to obtain a refund.

Morici finally received his shipment, but he said it was partial and "too late." He refused the shipment, canceled the order, and filed a lawsuit against the company and its officers.

The only claims against Barber and deCastro were fraud and unfair competition, which Davila dismissed on Friday, finding that Morici attributed nearly every fraudulent statement to HashFast without distinguishing which entity or individual was actually responsible for the misrepresentations.

"For example, plaintiff alleges that 'Hashfast' stated the 'Baby Jets' would ship in October, 2013. Similarly, he alleges that 'Hashfast' represented that 'Baby Jets' were 'in stock' and that 'Hashfast' misrepresented the computing power of its product. But under this style of pleading, Barber and deCastro are left to wonder which statements they are alleged to have made as individuals, and in turn, which statements they must defend against as individuals," Davila wrote.

Davila rejected Morici's argument that Barber and deCastro were liable for every misrepresentation of Hashfast due to their positions as corporate officers.

Morici failed to show that Barber and deCastro specifically authorized the actions of Hashfast or that they were the agents of the Hashfast entities, Davila said.

"Plaintiff's conclusory and formulaic agency allegations, which merely state that 'defendants, and each of them, were an owner, a co-owner, an agent and/or alter ego of their co-defendants,' are not enough and have been rejected by other courts as insufficient," Davila said.

Morici's unfair competition claims fail for the same reasons, Davila said.

He gave Morici until March 16 to amend the claims.

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