Opinion
Civil No. 1:22-cv-00023
2022-03-07
EZ BLOCKCHAIN LLC, Plaintiff, v. BLAISE ENERGY POWER, INC., and Mark Wald, Defendants.
Michael Kozlowski, Jr., Esbrook P.C., Chicago, IL, Timothy Q. Purdon, Robins Kaplan LLP, Bismarck, ND, for Plaintiff. Thomas E. Kalil, Kalil Law Firm, PLLC, Williston, ND, for Defendants.
Michael Kozlowski, Jr., Esbrook P.C., Chicago, IL, Timothy Q. Purdon, Robins Kaplan LLP, Bismarck, ND, for Plaintiff.
Thomas E. Kalil, Kalil Law Firm, PLLC, Williston, ND, for Defendants.
ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION
Daniel M. Traynor, District Judge
INTRODUCTION AND SUMMARY OF DECISION
[¶1] THIS MATTER comes before the Court on a Motion for Preliminary Injunction filed by the Plaintiff, EZ Blockchain LLC ("EZ Blockchain") on February 8, 2022. Doc. No. 7. The Defendants filed a Response on February 23, 2022. Doc. No. 16. A hearing was held on the Motion for Preliminary Injunction on March 1, 2022, at which time the Parties provided oral argument and agreed testimony was unnecessary for resolving the issues before the Court.
[¶2] Prior to the hearing, the Court granted a Temporary Restraining Order which prohibits the Defendants from selling the cryptocurrency miners at issue in this case. Doc. No. 12. Subsequent to the hearing, the Court extended the TRO for up to an additional fourteen days while the Motion for Preliminary Injunction was being considered. Doc. No. 17.
[¶3] The only disputed Dataphase factors are the probability of success on the merits and threat of irreparable harm. The Court previously found EZ Blockchain had succeeded in establishing all the Dataphase factors and that the factors weighed in favor of granting the Temporary Restraining Order. Doc. No. 12. Plaintiffs argues the balance of the Dataphase factors clearly weighs in favor of issuing a preliminary injunction requiring the return of the disputed cryptocurrency miners. The Defendants contend EZ Blockchain has not shown it is likely to succeed on the merits and EZ Blockchain is not at risk of irreparable harm. Defendants further contend a court's injunctive authority under Rule 65 prohibits the Court from ordering the return of the cryptocurrency miners.
[¶4] The circumstances of this case justify the return of the cryptocurrency miners to EZ Blockchain's possession. Neither party has provided this Court any case in which the Court has ordered the return of unlawfully possessed property to its rightful order at a preliminary stage in the case. Nor has either party offered this Court any case suggesting this Court lacks the authority to do so. Because the Court concludes the record at this time undeniably shows the Defendants are in unlawful possession of the cryptocurrency miners, allowing the cryptocurrency miners to remain in their possession would amount to the Court sanctioning continued conversion of the property pending this litigation. All the Dataphase factors weigh in favor of granting EZ Blockchain's Motion. In particular, public policy weighs heavily in favor of returning the disputed property to EZ Blockchain's possession. Accordingly, after weighing all of the Dataphase factors and for the reasons explained below, EZ Blockchain's Motion for Preliminary Injunction is GRANTED .
BACKGROUND
[¶5] The factual background surrounding this case was discussed in the Court's Order Granting the TRO (Doc. No. 12) and is repeated here. EZ Blockchain provides mobile blockchain infrastructure with mobile data centers used in the cryptocurrency mining business. Cryptocurrency is a digital currency secured by cryptography, many of which are based on blockchain technology. Blockchain technology is a decentralized network of computers used to record a series of transactions. The process of cryptocurrency generation is known as "mining," during which computers (known as "miners" in the cryptocurrency industry) work together to process large amounts of data to validate cryptocurrency transactions. These are stored on a blockchain. This process requires sophisticated hardware with a single miner typically costing around $7,000 to $10,000. A cryptocurrency mine requires hundreds of miners to operate effectively and uses significant energy resources.
The Defendants have submitted affidavits that purport to dispute the breach of contract claim alleged in the Verified Complaint, asserting EZ Blockchain breached the Contract at issue here. The Court does not consider those because, as discussed at length below, EZ Blockchain has proven a likelihood of success on its Conversion claim.
[¶6] EZ Blockchain rents rack space in its mobile data centers to customers and contracts with them to provide power and internet service to its mobile data centers. This allows EZ Blockchain's customers to utilize their miners in EZ Blockchain's mobile data centers and mine cryptocurrency. Each of EZ Blockchain's mobile data centers can hold around 768 miners. These mobile data centers’ electrical capacity is 2,500 kilowatts (2.5 megawatts), which it distributes to each miner in the mobile data center. Contracting to house cryptocurrency miners in its mobile data centers is known as "Hosting."
[¶7] Defendants Blaise Energy Power, Inc., ("Blaise") and Mark Wald ("Wald") entered into a Master Service Agreement ("Agreement" or "Contract") with EZ Blockchain to provide energy services to EZ Blockchain's data center at Bowline Energy's Triangle Rooster well site in McKenzie County, North Dakota ("Bowline Project"). EZ Blockchain agreed to provide "equipment installation including delivery, off-loading, electrical grounding by licensed electrician, Internet connectivity, service, maintenance and 24X7 monitoring and management unless outsourced to [Blaise]." Doc. No. 1-3 at p. 7. The Parties agreed to outsource that work to Blaise, who in turn agreed to provide a minimum of 2300 to 2500 kilowatts of power to run the data center at the Bowline Project. This resulted in a total kilowatt hour per 24-hour day of 55,200 to 60,000 kilowatt hours per 24-hour day. Doc. To produce this energy, Blaise was to use generators fueled by excess natural gas from the Bowline Project oil well that would otherwise be flared.
[¶8] The agreement does not address storing the miners. On October 7, 2021, Wald offered to EZ Blockchain to engage Hauck Sales and Services LLC ("Hauck Sales"), to provide shipping containers to store miners on an ongoing monthly basis at a rate of $140 per container per month. EZ Blockchain agreed to utilizing Hauck Sales’ shipping containers. Hauck Sales was to bill Blaise, who would pass that cost along to EZ Blockchain. After this agreement was arranged, EZ Blockchain shipped 1,440 miners to Blaise's location in Dickinson, North Dakota. 768 miners were to be used in the Bowline Project data center with 672 remaining in storage. These miners were owned by a customer of EZ Blockchain. Nevertheless, EZ Blockchain holds a security interest in these miners. From late October 2021 to December 2021, the storage of the miners occurred in this manner and EZ Blockchain paid all storage fees invoiced by Hauck.
[¶9] The Verified Complaint alleges Blaise's power generation log shows Blaise averaged less than half of the needed energy at 25,330 kilowatts per day. The Complaint further contends Blaise failed to service and maintain its power generators for the data center. This caused the generators to frequently shut down. Blaise failed to install the common distribution panel, which it was required to do under the Agreement. Instead, Blaise wired several generators directly to the data center. The Verified Complaint also contends Blaise did not use the service entry point to provide electricity to the data center.
Common distribution panels collect power created by several generators and ensures a steady flow of electricity to data centers. Doc. No. 1 at ¶ 43.
[¶10] In light of these alleged failures, Wald called EZ Blockchain's chief executive officer on December 22, 2021, to inform EZ Blockchain Blaise was canceling the Bowline Project. Wald further admitted Blaise failed to perform under the Agreement because it did not deliver the requisite uptime of power it had guaranteed. The Defendants contend EZ Blockchain breached the Contract. The Defendants also argue they are entitled to full compensation under the Agreement, which they calculate to be $72,059.37. Doc. No. 5-5.
[¶11] After Blaise pulled out of the Agreement with EZ Blockchain, Hauck Sales and EZ Blockchain transitioned the rental from Blaise to EZ Blockchain. In January 2022, Hauck Sales invoiced EZ Blockchain directly for the rental of the storage containers. The miners were stored in a shipping container outside Blaise's shop in Dickinson. In order to inventory and prepare the miners stored in Dickinson for shipment to Watford City, North Dakota, EZ Blockchain sent employees to Dickinson on January 19, 2022. During the inventory process, Wald moved an entire pallet of miners into Blaise's shop, claiming he needed "assurances" EZ Blockchain would pay Blaise on the Agreement. These miners are worth $4.7 million. The next day, on January 20, 2022, EZ Blockchain told Blaise it would pick up the miners at 9:00 a.m. on January 21, 2022. When EZ Blockchain employees arrived to pick up the miners, the Defendants refused to allow them to retrieve them from Blaise's shop. In fact, when the EZ Blockchain personnel arrived at Blaise's shop, the Defendants blocked the entrance to the yard with a pickup truck.
The Defendants are also refusing to allow EZ Blockchain to pick up the second Hauck shipping container, containing empty boxes for shipping miners and other miscellaneous equipment. Doc. No. 1 at ¶ 80. At the hearing, however, EZ Blockchain conceded it has no interest in the shipping containers.
[¶12] On February 2, 2022, the Defendants sent EZ Blockchain a purported notice "per ND Century Code 35-33" that EZ Blockchain must pay Blaise its alleged payments under the Agreement, roughly $70,000, by February 17, 2022. Doc. No. 5-5. If EZ Blockchain did not to pay Blaise by February 17, 2022, the Defendants threatened to sell the miners. In response to Blaise's threatened action, EZ Blockchain filed a Verified Complaint with three Causes of Action: (1) Conversion, (2) Unjust Enrichment, and (3) Breach of Contract. EZ Blockchain moved for a Temporary Restraining Order. The Court granted the TRO and prohibited the Defendants from selling the miners pending consideration of the Motion for Preliminary Injunction. EZ Blockchain asks the Court to order the Defendants to return all of EZ Blockchain's miners and related storage equipment. The Defendants contest this and ask the Court to deny the preliminary injunction.
DISCUSSION
I. Legal Standard
[¶13] In deciding whether to issue a preliminary injunction, the Court should consider four distinct factors: "(1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest." Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 113 (8th Cir. 1981) (en banc). Central to this analysis "is whether the balance of equities so favors the movant that justice requires the court to intervene to preserve the status quo until the merits are determined." Id. To that end, "no single factor is determinative," but the probability of success on the merits "is the most significant" factor. Id.; Home Instead, Inc. v. Florance, 721 F.3d 494, 497 (8th Cir. 2013). Nevertheless, the Court is required to consider all four of the Dataphase factors. See Home Instead, 721 F.3d at 500.
II. Jurisdiction
[¶14] The Defendant argues the Court lacks jurisdiction because the Plaintiff was not licensed to do business in North Dakota when the Complaint was filed. The Defendant contends N.D.C.C. § 10-32.1-84 prohibits EZ Blockchain from "maintain[ing] an action or proceeding in this state" until EZ Blockchain obtains a certificate of authority from the North Dakota Secretary of State.
The Defendants technically move pursuant to N.D.C.C. § 10.1-19.1-142(a), which prohibits foreign corporations from maintaining an action in state court until such time as it possesses a certificate of authority from the North Dakota Secretary of State. At the hearing, the Defendant agreed N.D.C.C. § 10-32.1-84, which prohibits the same for foreign limited liability corporations, governs this issue.
[¶15] In Bakken Residential, LLC v. Cahoon Enterprises, LLC, United States Magistrate Judge Charles Miller noted, "[T]he North Dakota Supreme Court would likely conclude the noncompliance with the statute can be cured, so that, with [the plaintiff] having now obtained the requisite certificate of authority, the Court can proceed to address the merits." 154 F.Supp.3d 812, 843, n.18 (D.N.D. 2015).
[¶16] EZ Blockchain has submitted its registration approval and certificate of good standing from the North Dakota Secretary of State. Doc. Nos. 19-1, 19-2. At the hearing, Defendants effectively waived their jurisdictional argument because EZ Blockchain was in the process of curing their defect under N.D.C.C. ch. 10-32.1. Since EZ Blockchain has now submitted the requisite paperwork showing they have approval to do business in North Dakota, any issue under N.D.C.C. § 10-32.1-84 is MOOT . III. Threat of Irreparable Harm
The Court previously concluded it has jurisdiction pursuant to 28 U.S.C. § 1332. Neither Party has challenged this finding and the Court incorporates it here. Doc. No. 12 at ¶ 15.
[¶17] EZ Blockchain contends there is a threat of irreparable harm of being dispossessed of the miners. It asserts this could result in the loss of good will among its customers or even the loss of its customers business entirely. The Defendants contend EZ Blockchain does not suffer an irreparable harm because it could have availed itself of the North Dakota Claim and Delivery statute to return the property.
[¶18] "Failure to show irreparable harm is an independently sufficient ground upon which to deny a preliminary injunction." Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003). This is because the purpose of injunctive relief is to provide a remedy for an irreparable harm that has inadequate legal remedies. Celco Corp. v. Coniston Partners, 811 F.2d 414, 418 (8th Cir. 1987). "When there is an adequate remedy at law, a preliminary injunction is not appropriate." Watkins Inc., 346 F.3d at 844. In other words, "[i]rreparable harm occurs when a party has no adequate remedy at law, typically because its injuries cannot be fully compensated through an award of damages." General Motors Corp. v. Harry Brown's, LLC, 563 F.3d 312, 319 (8th Cir. 2009). "[P]otential loss of consumer goodwill qualifies as irreparable harm." Iowa Utilities Bd. v. F.C.C., 109 F.3d 418, 426 (8th Cir. 1996).
[¶19] Courts can presume irreparable harm if the movant has established a probability of success on the merits of their claim. See Calvin Klein Cosmetics Corp. v. Lenox, 815 F.2d 500, 505 (8th Cir. 1987) ("The court correctly noted that it could presume irreparable injury from a finding of probable success in proving likelihood of confusion." (citing Black Hills Jewelry Mfg. Co. v. Gold Rush, Inc., 633 F.2d 746, 753 (8th Cir. 1980) )); see also Kodiak Oil & Gas Inc. v. Burr, 303 F.Supp.3d 964, 984 (D.N.D. 2018) ("The Eighth Circuit Court of Appeals has explained that a district court can presume irreparable harm if the movant has a likelihood of success on the merits.").
[¶20] The threat of irreparable harm to EZ Blockchain weighs in favor of issuing a temporary restraining order. The miners are sophisticated technology and cannot be easily replaced. See Doc. No. 5-1 at ¶ 35 ("The miners are manufactured by Microbt, and are Model M20S. These types of miners are not readily available in the marketplace. Even if a buyer were to purchase these miners, average lead times for delivery are four-month minimum."). In addition, as discussed below, EZ Blockchain has shown a probability of success on the merits of its conversion claim and, therefore, the Court can presume irreparable harm at this preliminary stage. See Calvin Klein, 815 F.2d at 505.
As a result of the Defendants taking the miners, EZ Blockchain has lost substantial goodwill with its customers and may lose future business. Doc. No. 5-1 at ¶¶ 36-37. The Defendants’ withholding of the miners from EZ Blockchain will harm EZ Blockchain's reputation among market participants. Id. at ¶ 38. These claims for harms may have been waived pursuant to the Contract governing the Parties’ relationship. Doc. No. 16-4 at ¶ 10. The Court notes this only to the extent there may be a dispute relating to these and there has been inadequate discussion on the record thus far for the Court to conclude consideration of these factors is precluded by the Contract.
[¶21] The Defendants argue that EZ Blockchain had an adequate remedy at law, namely claim and delivery. While the Court appreciates this argument, ultimately it fails because of the Defendants actions leading up to the filing of this case. The Defendants argue EZ Blockchain could have applied for claim and delivery under N.D.C.C. ch. 32-07 in state court to retrieve the property. But application for claim and delivery in North Dakota State Court was unavailable to EZ Blockchain. By setting an arbitrary date by which the Defendants threatened to sell the miners, and the fact that EZ Blockchain did not have approval to do business in North Dakota, EZ Blockchain was forced to apply for a preliminary injunction in this Court.
The Court references N.D.C.C. § 10-32.1-84 here only to point out the plain language of the statute clearly prohibits EZ Blockchain from in state court. N.D.C.C. § 10-32.1-84(1) ("A foreign limited liability company transacting business in this state may not maintain an action or proceeding in this state unless it has a certificate of authority to transact business in this state.").
[¶22] In addition, as EZ Blockchain pointed out at the hearing, they have essentially complied with the requirements of N.D.C.C. § 32-07-02. They have set forth an affidavit showing (1) they have an interest in the miners; (2) the Defendants are wrongfully detaining the miners; (3) the cause of detention is offered to the best of EZ Blockchain's; (4) the Defendants do not have a valid attachment against the miners; (5) the actual value of the property. Doc. Nos. 5-1, 5-2, 5-3, 5-4; N.D.C.C. § 32-07-02(1) – (5). The distinction between the injunctive relief requested and claim and delivery at this point is largely without a difference. Either way, the threat of irreparable harm weights in favor of issuing a preliminary injunction ordering the return of the miners at issue in this case.
N.D.C.C. § 32-07-02 also states the affidavit must include a statement the Court has issued an order authorizing the delivery under ch. 32-07, N.D.C.C. and provide a copy of the order to the defendants. This is unnecessary as no order has been issued at this time.
[¶23] Accordingly, EZ Blockchain has established the threat of irreparable harm.
IV. Balance of Harms
[¶24] EZ Blockchain contends the balance of harms weighs in favor of issuing a preliminary injunction because EZ Blockchain will continue to suffer substantial harm and the Defendants will suffer no harm if restrained from selling the miners. The Defendants do not contest this factor. As previously found when issuing the TRO, the balance of harms weighs in favor of returning the miners.
[¶25] "Once the court has determined that there is a threat of irreparable harm to the moving party, it must balance this harm with any injury an injunction would inflict on other interested parties." Richland/Wilkin Joint Powers Authority v. United States Army Corps of Engineers, 826 F.3d 1030, 1039 (8th Cir. 2016). The harm to EZ Blockchain, as discussed above, is significant. Denying the preliminary injunction would result in EZ Blockchain being dispossessed of the miners in which they have an interest. Based on this preliminary record, the Defendants will suffer no harm other than a delay in payment, especially if EZ Blockchain pays a bond in the amount the Defendants claim they are owed. Any potential harm relating to the roughly $70,000 the Defendants have claimed are owed them by EZ Blockchain can be handled with application of interest. Given this wide discrepancy in the harms the parties may suffer absent a temporary restraining order, the Court concludes the balance of harms weighs in favor of issuing a temporary restraining order.
V. Probability of Success on the Merits
[¶26] EZ Blockchain contends it has established a probability of success on the merits of the three claims in the Verified Complaint: (1) Conversion, (2) Unjust Enrichment, and (3) Breach of Contract. The Defendants contend EZ Blockchain will not be successful on the merits of their breach of contract claim because it is actually EZ Blockchain who has breached the contract. The Defendants further argue EZ Blockchain is not likely to succeed on the merits of their conversion and unjust enrichment claims because the Defendants were acting as a self-service storage facility and, therefore, have a lien on the miners. See N.D.C.C. ch. 35-33.
[¶27] When determining the probable success on the merits of the claims, the Court should not "apply the probability language with mathematical precision." Calvin Klein, 815 F.2d at 503. The Court must "flexibly weigh the case's particular circumstances to determine whether the balance of equities so favors the movant that justice requires the court to intervene to preserve the status quo until the merits are determined." Id. (internal quotation marks and citation omitted).
[¶28] The Eighth Circuit has described the probability of success on the merits "as the most important of the four [ Dataphase ] factors." Jet Midwest International Co. v. Jet Midwest Group, LLC, 953 F.3d 1041, 1044 (8th Cir. 2020) (alteration in original) (quoting Roudachevski v. All-Am. Care Centers, Inc., 648 F.3d 701, 706 (8th Cir. 2011) ). In weighing this factor, the Court does not decide whether the movant "will ultimately win"; rather, the movant "must simply show a ‘fair chance of prevailing.’ " Id. (quoting PCTV Gold, Inc. v. SpeedNet, LLC, 508 F.3d 1137, 1142 (8th Cir. 2007) and Planned Parenthood Minn., N.D., S.D. v. Rounds, 530 F.3d 724, 732 (8th Cir. 2008) (en banc)). Whether a movant has shown a fair chance of prevailing does not mean the movant must "prove greater than fifty per cent likelihood that [it] will prevail on the merits." Id. (quotation marks omitted) (quoting Dataphase Sys., 640 F.2d at 113 ). Under circumstances where the movant has no chance of succeeding, an injunction will not issue. Id. (quoting Mid-Am. Real Estate Co. v. Iowa Realty Co., 406 F.3d 969, 972 (8th Cir. 2005) ). A movant must establish a likelihood of success on the merits of a single claim. See Nokota Horse Conservancy, Inc. v. Bernhardt, 666 F.Supp.2d 1073, 1080 (D.N.D. 2009) ("The Court finds at this preliminary stage of the litigation, and based on the limited information in the record, the Conservancy has established a sufficient likelihood of success on the merits of its trademark infringement claim. The Court finds it is unnecessary to undertake an extensive review of the Conservancy's additional claims."); Running Horse, LLC v. Rodenbough Trucking & Excavating, Inc., 2016 WL 8737867, *3 (D.N.D. February 26, 2016) ("A likelihood of success on the merits of even one claim can be sufficient to satisfy the ‘likelihood of success’ Dataphase factor.").
[¶29] The Court previously found EZ Blockchain has established a probability of success on the merits of its claim for conversion. Nothing in the record changes this conclusion. In North Dakota, it is well-established "[c]onversion consists of a tortious detention or destruction of personal property, or a wrongful exercise of dominion or control over the property inconsistent with or in defiance of the rights of the owner." Ritter, Laber and Associates, Inc. v. Koch Oil, Inc., 2004 ND 117, ¶ 11, 680 N.W.2d 634 (collecting cases). In a conversion claim, a defendant must intend "to exercise control or interfere with the use of property to such a degree as to require a forced sale of the plaintiff's interest in the goods to the defendant." Id. Conversion is a wrongful deprivation of the plaintiff's property by the defendant. Id. It is not necessary for a plaintiff to demand return of the property and the defendant refuse to return the property. Id. Such a demand and refusal is, however, evidence of conversion. Id.
[¶30] The record establishes a probability of success on the merits of EZ Blockchain's conversion claim. Although EZ Blockchain is not the owner of the miners, through its contracts with the miners’ owners, EZ Blockchain has a security interest in the miners. The Defendants have wrongfully deprived EZ Blockchain of the miners by taking a pallet of miners to Blaise's shop and refusing to allow EZ Blockchain to recover the miners. Based on the preliminary record before the Court, the Defendants have no property interest in the miners and have no justification for holding them in opposition to EZ Blockchain.
[¶31] At the hearing, the Defendants argued they entered into a self-service storage contract with EZ Blockchain as evidenced by the conduct between the Parties. Defendants also argued this transaction constituted entering into the business of operating a self-service storage facility. EZ Blockchain disagrees and argues rental agreements under N.D.C.C. ch. 35-33 must be in writing and the Defendants were not in the business of operating a self-service storage facility.
[¶32] The Defendants claim they have a lien pursuant to N.D.C.C. § 35-33-02 must fail because they have not pointed to any clause in the original Agreement or any separate contract that constitutes a written agreement between the parties for storing the miners at Blaise's facility. Section 35-33-02(1) creates a statutory lean in favor of the owner of a self-service storage facility "on all personal property stored under a rental agreement in a storage space at the self-service storage facility for rent, labor, late fees, and other charges." (emphasis added). Section 35-33-01(6), N.D.C.C., defines "rental agreement" as "a written agreement between the owner and occupant which establishes or modifies the terms and conditions of the occupant's use of storage space at a self-service storage facility." (emphasis added)
[¶33] At the hearing, the only basis for a rental agreement noted by the Defendant was the conduct between the Parties as it relates to storing the miners at Blaise's property. This is categorically excluded by the plain language of N.D.C.C. §§ 35-33-01(6) and 35-33-02(1), which when read together, require a written agreement to establish a lien under this statute. Because there was no written agreement between the Defendants and EZ Blockchain relating to the storage of the miners at Blaise's property, the Defendants, as a matter of law, do not have a lien pursuant to N.D.C.C. ch. 35-33.
[¶34] Furthermore, as the Court previously determined, the preliminary record establishes the Defendants are not in the self-service storage facility business and, therefore, cannot claim a lien on the miners. Blaise's facility is used for its oil and gas operations, not "for renting or leasing individual storage spaces in which occupants customarily store and remove their personal property." N.D.C.C. § 35-33-01(7). This is fatal to the Defendants’ argument. The Defendants are in the oil and gas services business, not the self-service storage facility business. As such, they are not entitled to a lien on EZ Blockchain's property under ch. 35-33, N.D.C.C.
[¶35] The Defendants’ claim of a lien under N.D.C.C ch. 35-33 also fails because they claim EZ Blockchain must pay for the Defendants services as it relates to the Bowline Project Agreement, not for "rent, labor, late fees, and other charges" that relate to the storage of the miners. See N.D.C.C. § 35-33-02(1). The preliminary record establishes EZ Blockchain has paid all rental fees to Hauck, whether directly or through Blaise. There was no agreement between Blaise and EZ Blockchain which required EZ Blockchain to pay any fee to the Defendants for storing the miners on the Defendants’ property. There is evidence in the record there was an oral agreement between EZ Blockchain and Blaise that EZ Blockchain would continue to make payment under the Contract regarding Blaise providing energy services in exchange for housing the miners in the storage containers at Blaise's property. Doc. No. 16-3, ¶ 6 ("To accommodate EZB further, Blaise agreed to provide storage for [the miners], and to rent shipping containers to store them in, provided EZB agreed to continue to pay Blaise the contract amounts when owed as set forth in our MSA agreement and work order."); see also Doc. No. 5-5. This does not constitute "rent, labor, late fees, and other charges" for the storage of the miners. Rather, these allegedly past due payments were for performance on the original Agreement. Accordingly, the record before this Court establishes the Defendants are not a self-service storage facility and the Defendants do not have a lien on the miners.
[¶36] Accordingly, the probability of success on the merits of EZ Blockchain's conversion claim weighs in favor of issuing a preliminary injunction.
VI. Public Interest
[¶37] EZ Blockchain contends the public interest weighs in favor of issuing a temporary restraining order because the public interest "patently disfavors Blaise's ransom tactics." Doc. No. 5 at p. 15. The Defendants do not dispute this factor. "For the court to grant an injunction, the moving party must establish that the entry of the relief would serve public interest." North Dakota v. E.P.A., 127 F.Supp.3d 1047, 1059 (D.N.D. 2015) (citing Dataphase, 640 F.2d at 113 ).
[¶38] The Parties dispute the Court's authority to issue a preliminary injunction requiring the Defendants to return the miners to EZ Blockchain. The Defendants argues a preliminary injunction is an inappropriate mechanism by which to order the return of the miners, citing Dickson v. Dows, 11 N.D. 404, 92 N.W. 797, 798 (1902). Dickson is distinguishable from the current case. In Dickson, the district court refused to enjoin the defendant from possessing the disputed land and exercising her rights over it. Id. at 798. In refusing to grant the injunction, the district court also refused to give plaintiff possession over the land. Id. The North Dakota Supreme Court affirmed holding, "[u]nder the circumstances disclosed, the trial court very properly refused to interrupt the defendant's possession, and to prevent her from exercising her rights over the land." Id. The North Dakota Supreme Court noted the general rule for preliminary injunctions in North Dakota is not to take property from one party and put it in the possession of another. Id. It concluded, however, "[t]here are no facts in this case which would make it an exception to the above rule." Id.
[¶39] In Dickson, the defendant had rights to the land the district court chose not to disturb until a final determination on the merits. In the present case, there is a significant fact that would create an exception to the general rule. The Defendants have no right to possess the miners. The public policy therefore weighs greatly in favor of ordering the return on the miners at this early stage in the litigation. To do otherwise would be to sanction the unlawful possession of the miners when the Defendants have presented no valid justification for maintaining possession over them. Issuing the preliminary injunction to return the miners essentially enjoins the Defendants from further possession of the miners pending this litigation. This is appropriate under the circumstances of this case.
[¶40] While generally the probability of success on the merit's factor should be given the most weight when considering a preliminary injunction, the Court considers the public policy at issue in this motion to be most significant. The Defendants are essentially holding the miners ransom until EZ Blockchain pays for an alleged breach of contract. The public policy cannot tolerate allowing one party to hold another party's rightful property ransom pending litigation, especially when a bond posted by EZ Blockchain can satisfy the Defendants’ desire to maintain possession of the miners. Accordingly, the public policy significantly weighs in favor of granting the preliminary injunction and ordering the return of the miners.
VII. Security
[¶41] At the hearing, the Court asked the parties what bond amount would be appropriate under the circumstances. EZ Blockchain asked the Court to refrain from requiring a bond or, alternatively, require the roughly $70,000 demanded by the Defendants. The Defendants stated the $70,000 figure would be appropriate under the circumstances. The Court agrees.
[¶42] Rule 65(c) provides, "[t]he court may issue a preliminary injunction or temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained."
[¶43] The notice sent to EZ Blockchain demanded payment of $72,059.37. Doc. No. 5-5. The Parties agree this amount is appropriate under the circumstances. The Court concludes $72,059.37 is appropriate and will cover any costs or damages sustained by the Defendants if wrongfully enjoined or restrained. Id.
CONCLUSION
[¶44] The Court has reviewed the entire record and Dataphase factors and finds EZ Blockchain has met its burden of establishing the need of a preliminary injunction requiring the Defendants to return the miners to EZ Blockchain's possession. Accordingly, EZ Blockchain's Motion for Preliminary Injunction (Doc. No. 7) is GRANTED. The Defendants are, therefore, ENJOINED from further possession of the miners and ORDERED to promptly return possession of the miners to EZ Blockchain, its representative, or counsel. It is further ORDERED :
1. The Defendants are prohibited from selling the miners prior to returning them to EZ Blockchain.
2. The Parties shall work together to find a suitable time and place for EZ Blockchain to retain possession of the miners. This time shall not to exceed fourteen (14) days from the issuance of this Order. The Parties may request additional time if necessary.
3. The Parties shall file a status report with the Court advising of the date the miners were returned.
4. In accordance with Rule 65(c) of the Federal Rules of Civil Procedure, a $72,059.37 bond shall be required to be posted by EZ Blockchain before the return of the miners. An Affidavit of Ownership must accompany the Bond. See D.N.D. Gen. L.R. 1.11(D).
5. EZ Blockchain shall promptly deliver a check in the amount of
$72,059.37 to the Clerk of Court in accordance with Local General Rule 1.10(A)(3) and (B)(2) for deposit in the Disputed Ownership Fund within the Court Registry Investment System (CRIS). The check shall be made payable to the United States District Court and must be forwarded to the Fargo Clerk's office for deposit. The custodian of the Court Registry Investment System (CRIS) is authorized to deduct the service fee and registry fee, without further order of the Court.
[¶45] IT IS SO ORDERED .