Bitcoin miner builds electrical transformer in rented space, lawsuit follows

Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.

As always, Rosario summaries are “NMR” and Palley summaries are “SDP". This week’s guest post by Justin Steffen is “JCS”

[related id=1]Main Mill Street Investments, LLC v. Coinmint, LLC and Ashton Soniat, Case 8:19-cv-00328-FJS-CFH (NY Sup. Ct., Clinton County, March 15, 2019) [NMR]

Surprisingly, one area of law that we have not talked about at Crypto Caselaw Minute concerns landlord tenant issues. If you’ve ever rented an apartment you’ve signed a lease that lays out the nature of the agreement between you and your landlord. In a residential context this is usually a fairly low risk engagement for everyone involved. I mean, how much trouble can either party get into with respect to your studio apartment? In the commercial context, where a company is renting space for a commercial purpose, things can get dicier. Especially, if your commercial purpose involves, oh I don’t know, consuming massive amounts of energy that necessitate you building your own electrical system to power your bitcoin mining operation. That’s one component of this case. Throw in some allegations of breach of contract and your landlord is probably going to sue you.

Ashton Soniat is the CEO of a cryptocurrency mining company called Coinmint, LLC. Main Mill Street Investments, LLC (MMSI) is a real estate company that rents office space. On September 16, 2016, Coinmint leased office space in New York in a building owned by MMSI. Subsequently, on September 23, 2016, Soniat signed a personal guaranty that he would guarantee the prompt payment by Coinmint of all rents and other payments under the lease. Allegedly, right after the lease was signed Coinmint started violating the terms of the lease and problems began.

One of the most common criticisms of cryptocurrency mining is the electricity costs involved in Proof of Work mining. It takes a lot of electricity. A lot. As such, one of the things that Coinmint did after leasing their office space was build its own electrical transformer units. Now, if you are going to build something like this you have to alert your landlord, because that is a pretty significant alteration to the premises, and it is probably not covered by your lease. This is what Coinmint (allegedly) did, but (also allegedly) there were many problems associated with the transition to the new electrical system.

As noted in multiple exhibits attached to this lawsuit, MMSI alerted Coinmint on more than one occasion that they were in breach of their lease in large part due to construction issues related to all of the electrical changes Coinmint was implementing. Some of the changes were allegedly not approved by MMSI. Another building issue, is that allegedly, snow was coming into Coinmint’s office space. Additionally, Coinmint was allegedly not paying their rent, and not paying the company that did the electrical work for them to support the mining operation. The latter resulted a mechnic’s lien being placed on the altered property. Obviously, these issues, allowing snow to regularly come into your unit, not paying your rent, and getting a lien placed on your rented property, are going to upset your landlord.

So, what is MMSI suing Coinmint for? Well, breach of contract issues. In particular, breaching the terms of the lease, ie failing to pay their rent, and the other issues. Given the attached exhibits Coinmint will have to present some compelling evidence that there was not damage to their rented office space, that they paid their rent, and that the mechanic’s lien was not valid, or was paid in full. That sounds like a tall order.

The Block is pleased to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part II of this week's analysis, Crypto Caselaw Minute, is above.