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Outpost Capital Management, LLC v. Prioleau

United States District Court, D. South Carolina, Charleston Division

July 18, 2017

Outpost Capital Management, LLC and Bill Laggner, Plaintiffs,
v.
Robert Prioleau, as Manager of HMB Ventures, LLC; HMB Ventures, LLC; and Halsey Minor Defendants.

          ORDER AND OPINION

          Richard MarKGergel United States District Judge.

         This matter is before the Court on two motions to dismiss, one filed by Defendants HMB Ventures, LLC and Halsey Minor and a second filed by Defendant Robert Prioleau. (Dkt. Nos. 15, 16.) Plaintiffs have filed a combined response in opposition to both motions to dismiss, and defendants have filed replies. (Dkt. Nos. 19, 22, 23.) For the reasons set forth below, the Court finds that jurisdictional discovery is warranted. The parties shall complete jurisdictional discovery by September 19, 2017 and file supplemental briefs with the Court on or before October 3, 2017.

         I. Relevant Facts

         a. Bitreserve, Ltd. and Related Entities

         This matter involves a contract dispute over a Stock Purchase, Transfer, and Voting Agreement for shares of a privately-held company called "Bitreserve, Ltd." The parties' briefings have not been helpful to the Court, so the Court has relied substantially on publicly available records from the Secretaries of State in California, South Carolina, and Washington, which reveal the following about Bitreserve, Ltd. and its related entities.

• "Bitreserve, Inc." is an entity that was incorporated in the state of Washington on January 13, 2014. It has been licensed to do business in California since May 2014. The entity changed its name to "Uphold, Inc." in February 2017, several months after this lawsuit was filed.
• "Bitreserve HQ, Inc." is an entity that was incorporated in South Carolina on March 31, 2014. It has been licensed to do business in California since December 2014. The entity changed its name to "Uphold HQ, Inc." in March 2016. Minor has conceded that Bitreserve, Ltd. "operates" through this "HQ" entity that is incorporated in South Carolina. (Dkt. No. 23 at 2.)
• "Bitreserve, Ltd., " whose stock is the subject of this litigation is, according to Defendant Halsey Minor, a Cayman Islands corporation with its principal place of business in California. (Id. at 3.) Minor asserts that Bitreserve, Ltd. has "always maintained its headquarters in California." (Id. at 6.) Minor, who resides in California, is the founder and former CEO of Bitreserve, Ltd. (Dkt. No. 12.) Plaintiffs allege that Bitreserve, Ltd. was "previously headquartered in South Carolina and is registered to do business in this state." (Id. at 1.) The Court has not found any record of Bitreserve, Ltd. being incorporated or registered to do business in South Carolina. Although Bitreserve HQ and Bitreserve, Inc. are both licensed to do business in California, this Court has not been able to identify any publicly available record showing that an entity named "Bitreserve, Ltd." is licensed to do business in California. For this reason, the Court cannot readily accept Defendants' assertion that Bitreserve, Ltd.'s principal place of business is California.

Because the parties' briefings reveal that Plaintiffs have not had access to the information needed to properly brief arguments about jurisdiction and venue, and because the Court is not confident that Defendants' representations about the various Bitreserve entities are accurate, jurisdictional discovery is warranted.[1] The parties will have until September 19, 2017 to complete jurisdictional discovery and until October 3, 2017 to file supplemental briefs on these issues. To guide the parties during this period of jurisdictional discovery, the Court sets forth below its preliminary understanding of the facts and relevant legal standards.

         b. Minor creates HMB Ventures, LLC and appoints Prioleau as Manager

         Plaintiffs allege that, in 2015, Minor transferred his 30, 000, 000 shares of Bitreserve, Ltd. to HMB Ventures, LLC ("HMB"), a limited liability company incorporated in Delaware.[2] (Dkt. No. 12 at 3-4.) Minor is the sole member of HMB. (Dkt. Nos. 12 at 4; 15-2 at 1.) The details of this transaction are set forth in HMB's Limited Liability Company Agreement ("LLC Agreement"). (Dkt. No. 15-2 at 13-20.) The purported purpose of the LLC Agreement, signed on September 24, 2015, was to allow Minor to "relinquish[] any right to vote [his] Bitreserve Shares and any right to exercise control or influence over the voting of his Bitreserve Shares." (Id. at 13.) The LLC Agreement names Robert Prioleau as Manager and vests him with the "sole, complete and unrestricted right to vote the Bitreserve Shares and all rights to exercise control and influence over the voting of the Bitreserve Shares." (Id. at 15.)

         c. The Parties Execute a Stock Purchase, Transfer, and Voting Agreement

         Plaintiff Laggner is an individual who resides in Texas. (Dkt. No. 12 at 3.) Plaintiff Outpost Capital Management, LLC is a limited liability company incorporated in Delaware with its principal place of business in Connecticut. (Id.) Outpost has only two members, and both are residents of Connecticut. (Id.)

         Plaintiffs allege that they entered a Stock Purchase, Transfer, and Voting Agreement ("Stock Agreement") with Defendants on June 26, 2016 in which each Plaintiff agreed to purchase 4, 843, 890 shares of stock in Bitreserve, Ltd. (Id. at 1.) Under the terms of the Stock Agreement, the seller agreed to transfer and assign the shares to Plaintiffs after Bitreserve, Ltd.'s "Board approves such company's next financing." (Dkt. No. 19-9 at 2.)

         The Stock Agreement includes a voting provision under which the "seller agrees to vote his and any of his affiliate[s'] remaining shares . . . according to the vote recommended by the majority of the Board of Directors of Bitreserve, Ltd. until such time as Bitreserve has completed a financing." (Dkt. No. 15-2 at 6.) At the time the parties entered the Stock Agreement, only Prioleau, as Manager of HMB, had the ability to vote Bitreserve, Ltd. shares. (Id. at 15.) Prioleau is not listed as a party to the Stock Agreement, but he signed the Agreement and wrote under his signature "I have reviewed this Agreement and agree to fulfill its terms as to the Shares and [Minor] in my capacity as trustee and acknowledge full receipt of the consideration paid for said shares." (Id. at 8.)

         d. The Condition Precedent of the Stock Agreement is Allegedly Met and Defendants ...


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