Kingdom Trust’s Bitcoin IRA lawsuit dismissed in federal court for lack of jurisdiction

Stephen Palley

My Ret. Account Servs. v. Alternative Ira Servs., 2019 U.S. Dist. LEXIS 180327 (W.D. Kentucky, NO. 5:19-CV-122-TBR, 10/18/2019) [SDP]

Link to case

For all of you crypto civil procedure mavens, this opinion offers a nice primer on personal jurisdiction and happens to involve an underlying dispute involving cryptocurrencies held by a trust custodian for individual retirement accounts (“IRAs”.)

The plaintiff Kingdom Services owns a company called Kingdom Trust, a South Dakota company with its principal place of business in Kentucky which is the trust custodian you read about just words away in the preceding paragraph. The defendant is a Delaware LLC with its principal place of business in California. It does business under a bunch of different names including Bitcoin IRA. BitGo Inc., also a defendant, is a Delaware corporation, and it has an affiliate named BitGo trust which is a South Dakota corporation.

Back in early 2018, plaintiff entered into a contract with Bitcoin IRA for use of a technology platform so customers could buy and sell crypto in their IRA. Things went south, and as often ensues when things go south, there was a lawsuit. Here’s the gist:

Before transferring its clients’ assets, Kingdom Trust claims it was required by federal and state law to perform due diligence on BitGo Trust and its relationships with service providers. In response to Kingdom Trust’s delay in executing the transfers, Defendant Concha sent Kingdom Trust a cease and desist letter demanding Kingdom Trust execute the transfers immediately. Kingdom Trust also claims that BitGo Trust encouraged clients to contact South Dakota banking regulators and complain about the delay. According to the Complaint, Defendants continued to contact Kingdom Trust clients and encourage them to transfer their assets to BitGo Trust until the current action was filed in August 2019.

(The lawsuit was previously covered here, if you’re interested in further reading about the allegations.)

Anyway, these allegations are all well and good, but as regular readers of CCM will recall, a Court can’t entertain a lawsuit when it doesn’t have jurisdiction over the parties. And therein, friends, lies the rub. No personal jurisdiction.

The defendants said they had nothing to do with Kentucky, which is where this lawsuit was filed and so moved to dismiss on those grounds. Most states (it may be all, and probably is, but I haven’t done a survey) have statutes that cover personal jurisdiction over non-resident defendants. They are called “long arm” statutes. A federal court in this kind of case — diversity jurisdiction, to be technical — uses the long arm statute of the state where they are located.

That’s what this court did, holding that there just wasn’t enough connection with Kentucky for the lawsuit to be adjudicated there. For example:

  1. No torts were allegedly committed by defendants in Kentucky Defendants didn’t regularly do business in Kentucky or solicit business there
  2. There wasn’t an allegation or evidence that Defendants “derive substantial revenue from goods used or consumed or services rendered” in Kentucky.
  3. The fact that defendants communicated with plaintiffs who were in Kentucky via letters, phone calls and emails wasn’t enough either

Bottom line, this Bitcoin IRA lawsuit didn’t have enough to do with Kentucky to be heard in a Kentucky federal court. Result = case dismissed.

Disclaimer: Crypto Caselaw Minute is provided for educational purposes only by Stephen Palley (@stephendpalley) and Nelson Rosario (@nelsonmrosario). These summaries are not legal advice. They 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”.