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DigitalIRA.Com, LLC v. The Kingdom Trust Co.

United States District Court, D. South Dakota, Southern Division

September 13, 2019




         Plaintiffs,, LLC and Alternative IRA Services, LLC, filed a complaint against defendant, the Kingdom Trust Company, seeking a temporary restraining order, preliminary and permanent injunctions, and money damages to redress injuries suffered by plaintiffs as a result of Kingdom Trust's alleged tortious conduct and breach of contract. Docket 1 ¶ 1. Kingdom Trust moves to dismiss or transfer the action based on the “first-filed” rule. Docket 13. Digital IRA opposes this motion. Dockets 20, 25. For the following reasons, the court stays this action pending resolution of Digital IRA's motion to dismiss the parallel action that was filed by Kingdom Trust in the Western District of Kentucky.


         Digital IRA and Alternative IRA Services are Delaware limited liability companies with their principal places of business at the same address in Sherman Oaks, California. Docket 1 ¶¶ 2, 3. For the purposes of this motion, plaintiffs appear to operate as a single business entity and will be referred to collectively as Digital IRA. Kingdom Trust is a South Dakota corporation with its principal place of business in Sioux Falls, South Dakota. Id. ¶ 5. Kingdom Trust provides self-directed individual retirement account (IRA) custodial services for its clients. Docket 14 at 1. A portion of the assets in some of these accounts is digital, held in cryptocurrency. Id. Digital IRA provides a technology platform for trading such cryptocurrency assets. Id. at 1-2.

         Digital IRA refers its clients to self-directed trust custodians, like Kingdom Trust, so they can use Digital IRA's platform to manage investments in cryptocurrency. Id. ¶ 11. On September 5, 2018, Kingdom Trust and Digital IRA entered into a referral agreement. Docket 1 ¶ 23; Docket 1-1. The agreement provided that Digital IRA would refer some of its users to Kingdom Trust to serve as the customers' trust custodian in exchange for a referral fee from Kingdom Trust. Docket 1-1 at 2. Digital IRA referred numerous customers under the agreement, who used Digital IRA's online platform with Kingdom Trust's self-directed custodianship. Docket 1 ¶ 27.

         In the spring of 2019, the Kingdom Trust-Digital IRA relationship began to deteriorate. Digital IRA entered into a custodial referral relationship with a separate trust custodian, BitGo Trust. Docket 14 at 7-8. Kingdom Trust was not a party to the referral contract. Id. at 8. Following the agreement, hundreds of Digital IRA customers who used Kingdom Trust as a custodian began requesting “in-kind” transfers of their IRA assets from Kingdom Trust to BitGo Trust. Docket 1 ¶ 27. According to Digital IRA, Kingdom Trust engaged in delay tactics to avoid effectuating the transfers. Id. ¶ 31.

         In response to the alleged delay tactics, Digital IRA's CEO, Camilo Concha, sent a demand letter to Kingdom Trust. Docket 25 at 13-14. The letter threatened that if Kingdom Trust continued to delay the transfer of accounts to BitGo Trust, Digital IRA would report complaints about Kingdom Trust to the South Dakota Division of Banking. Docket 32-2 at 4. Concha threatened to instruct account owners to lodge their own complaints with the Division of Banking. Id. Concha, himself a Kingdom Trust customer, also threatened to spearhead a class action against Kingdom Trust by its customers. Id. In a July 3, 2019 email, Concha requested information about Kingdom Trust's agent for service of process. Docket 28-1 at 2.

         Kingdom Trust and Digital IRA continued to disagree as to when and how Kingdom Trust was to transfer accounts to BitGo Trust. Docket 1 ¶¶ 37-44. On August 22, 2019, Kingdom Trust filed suit against Digital IRA in the Western District of Kentucky (the Kentucky action), alleging a variety of business torts and contract breaches related to the dispute. Docket 14-1. On August 23, 2019, Digital IRA sent a cease and desist letter to Kingdom Trust, demanding that it retract alleged defamatory statements made to Digital IRA customers. Docket 1 ¶ 53. Digital IRA filed its complaint in this action, in the District of South Dakota, on August 26, 2019. Docket 1.


         The first-filed rule “typically determines . . . which of two concurrent federal court actions should proceed to judgment.” Smart v. Sunshine Potato Flakes, LLC, 307 F.3d 684, 687 (8th Cir. 2002). “The first-filed rule gives priority, when parallel litigation has been instituted in separate courts, to the party who first establishes jurisdiction in order to conserve judicial resources and avoid conflicting rulings.” Keymer v. Mgmt. Recruiters Int'l, Inc., 169 F.3d 501, 503 n.2 (8th Cir. 1999). The standard is that “in the absence of compelling circumstances” the court should apply the first-filed rule. Nw. Airlines, Inc. v. Am. Airlines, Inc., 989 F.2d 1002, 1005 (8th Cir. 1993) (internal quotation omitted). The decision whether to apply the first-filed rule is one that is within the discretion of the court. See Anheuser-Busch, Inc. v. Supreme Int'l Corp., 167 F.3d 417, 419 (8th Cir. 1999). Federal courts have “an ample degree of discretion” in determining how best to administer multiple cases in the federal judicial system. Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183-84 (1952).


         Digital IRA and Kingdom Trust agree that parallel actions, arising out of the same set of facts, are pending in the Western District of Kentucky and the District of South Dakota. Docket 14 at 18; Docket 25. The parties dispute, first, whether the case given priority under the first-filed rule is the first case where a defendant is served or the first case where the complaint is filed. Docket 25 at 6; Docket 30 at 2. Second, Digital IRA argues that even if the first-filed case, and not first-served, is given priority, circumstances surrounding the Kentucky and South Dakota actions warrant a departure from the rule. Docket 25 at 12. Kingdom Trust argues that such circumstances are not present here. Docket 30 at 5.

         I. Does the first-filed rule give priority to the first case filed or the first case served?

         “To conserve judicial resources and avoid conflicting rulings, the first-filed rule gives priority, for purposes of choosing among possible venues when parallel litigation has been instituted in separate courts, to the party who first establishes jurisdiction.” Nw. Airlines, Inc., 989 F.2d at 1006 (citing U.S. Fire Ins. Co. v. Goodyear Tire & Rubber Co., 920 F.2d 487, 488 (8th Cir. 1990)). Numerous courts have held that “jurisdiction attaches upon the filing of the complaint and not the service of it.” Med-Tec Iowa, Inc. v. Nomos, 76 F.Supp.2d 962, 970 (N.D. Iowa 1999). See also Pacesetter Sys., Inc. v. Medtronic, Inc., 678 F.2d 93, 96 n.3 (9th Cir. 1982); Hospah Coal Co. v. Chaco Energy Co., 673 F.2d 1161, 1163 (10th Cir. 1982); Barber Greene Co. v. Blaw-Knox Co., 239 F.2d 774, 778 (6th Cir. 1957); Fat Possum Records, Ltd. v. Capricorn Records, Inc., 909 F.Supp. 442, 445 (N.D. Miss. 1995); Marianna Imps., Inc. v. Helene Curtis, Inc., 873 F.Supp. 308, 309 (D. ...

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