Bitwise Industries faced another breach of contract suit in 2022 over building ownership

A lawsuit filed this week against Bitwise Industries and its subsidiaries over questionable property transactions isn’t the first one the self-proclaimed “mothership” of technology entrepreneurship has faced from its ownership involvement in the historic State Center Warehouse building on R Street in downtown Fresno.

In January 2022, BW Industries and Bitwise co-CEO Jake Soberal were sued in Fresno County Superior Court by a partnership that previously had joint ownership of the old brick warehouse at 747 R Street, north of Ventura Street. That case, later settled out of court in July 2022, accused BW Industries and Soberal of breach of contract and breach of good faith and fair dealing, among other complaints.

That lawsuit preceded by more than a year the surprise announcement Monday night by Soberal and his co-CEO, Irma Olguin Jr., that Bitwise was immediately shutting down operations and furloughing all of its employees — about 900 people in Fresno and other cities in California and across the U.S. — in what the pair described as what they hoped would be a temporary measure in the face of a financial crisis.

The 2022 lawsuit is similar to the latest case in that each underscores the tangled business relationships involved in ownership of Bitwise’s properties — each of which is held in the name of different Bitwise subsidiaries. For the State Center Warehouse, it gets even more complicated because Soberal was both a manager of the company that owned and underwrote the renovation of the building and co-CEO of Bitwise Industries, the intended tenant.

Fresno developer William Dyck, Paul Quiring of Quiring Construction, Eric Wilkins of Wilkins Enterprises in Fresno, and Soberal were all managers of Bitwise at State Center LLC, a partnership formed in November 2016 to purchase and rehabilitate the old warehouse. Upon completion of the renovations, BW Industries under Soberal was to become the master tenant, able to sublease to business tenants in the building and having responsibility for paying taxes, utilities, maintenance and other expenses.

Convoluted business relationships involving Soberal

The 2022 case alleged that Soberal, on behalf of BW Industries, inked a lease agreement in November 2019 and also signed off as a manager of the would-be landlord company. About a year later, an addendum to the lease was agreed to between the two entities, with Soberal again having a dual role as a manager of the landlord company and co-CEO of the tenant company.

The landlord company, Bitwise at State Center, asserted in the lawsuit that it had contributed almost $3.3 million for tenant improvements on the building to specifications set out by Soberal and BW Industries. Original plans called for the landlord to build out about 10,000 square feet on the building’s third floor to market that space, the lawsuit states, but BW Industries prevailed upon the landlord to redirect $1 million earmarked instead toward contributions to tenant improvements.

“Defendant BW Industries Inc. induced plaintiff into acquiescing to this request by promising that (BW Industries) would build out the third-floor expansion at its expense,” the suit alleged, adding that BW Industries “has failed to build out the third floor expansion at its expense.”

In accordance with the lease agreement, after the renovations were completed and the city of Fresno issued a permit for occupancy in November 2021, the landlord company sent to BW Industries a lease commencement notice, according to court documents. However, the lawsuit added, from the fall of 2021 through early 2022, Soberal “has taken the position and alleged that there is no valid lease agreement between Plaintiff and Defendant BW Industries Inc.”

As a result, the complaint stated, Soberal and BW Industries were in breach of the the lease agreement signed in 2019 and the 2020 addendum by failing to pay monthly rent to the landlord company, by not paying for utilities. taxes and other expenses, and by failing to insuring the property.

That lawsuit was eventually settled out of court and dismissed in July 2022. The terms of the settlement are not included in court documents, but apparently revolved around BW Industries buying the building from the landlord partnership. The sale, estimated in a public records database at $22.3 million, was recorded on July 21, 2022, the same date that the lawsuit was dismissed.

That also coincides with the time period in which NICbyte LLC, the Texas company that sued Bitwise this week, was entering into a joint venture with BW Industries and a subsidiary, Wishon Row, to purchase the State Center Warehouse along with three Bitwise properties in Bakersfield and one in Oakland.

The day after the contract was signed for BW Industries to purchase the Fresno warehouse from the landlord company, BW Industries immediately resold the building to 747 R Street LLC, the entity established under the NICbyte/Wishon Row joint venture to own the Fresno building. The estimated price for that deal was $21.5 million, a public records database shows.