Butterfly Labs Faces $5 Million Lawsuit Over Unfulfilled Order

Nermin Hajdarbegovic
Feb 6, 2014 at 17:29 UTC
Updated Sep 10, 2014 at 12:02 UTC

Butterfly Labs is facing a lawsuit for over $5 million that alleges that it was negligent in its business dealings, and even accuses the company of downright fraud.

The suit was brought by Martin Meissner, who placed a $62,000 order for BFL miners back in March 2013. Meissner claims he did not received the units or a refund for his payment, according to a report in Ars Technica.

The suit was filed in December, and it accuses Butterfly Labs of fraud, negligent representation and breach of contract.

Motion to dismiss

Butterfly Labs and its attorneys refused to comment on the matter, but Meissner’s attorney, Robert Flynn, was keen to share his views, saying to Ars Technica that he has been contracted by multiple people with similar complaints, but this is the first one to result in a lawsuit.

Although Butterfly Labs isn’t talking, it is making some legal moves. Earlier this week, the company filed a motion to dismiss Meissner’s claims, arguing that it does not state a claim that can be compensated.

The plaintiff “is not entitled to consequential damages as a matter of law because they are too speculative,” the company said.

Delays and disputes

On March 25, 2013, Meissner ordered two 1,500 GH/s bitcoin miners (product code MRG015T) and transferred $62,598 to Butterfly Labs. The contract stated that initial shipments were expected in April, but, since products are shipped according to the order queue, Meissner would get them “two months or more after order.”

Things quickly went downhill from there. In May, Butterfly Labs told Meissner that they received his payment, but they were unable to match it to any order until they got an email from him. Butterfly Labs invoiced him the same day. However, Meissner’s miners were not shipped. Instead Butterfly Labs offered to ship him six 500GH/s miners but it is unclear whether Meissner accepted or refused the offer.

This is where it gets a bit blurry, but, in any case, Meissner did not receive the 500 GH/s miners, either.

In mid-October, Meissner’s lawyer sent the company a letter, saying that any shipment at such a late date would be refused. Butterfly Labs refused his request for a refund, saying that all sales are final. However, Meissner argues that no sale was ever made, since he never got the product.

‘Speculative claim’

The most obvious question is why Butterfly Labs allowed the dispute to escalate and get them in the news. After all, it could have refunded Meissner and sold the miners to someone else, when they become available.

There is a bit of a problem, though. Meissner is not just asking for his $62,000 back – he also wants compensation for lost revenue. The complaint states that Meissner missed out on an opportunity to mine between $5- and $7.5-million worth of bitcoins.

The complaint states:

“Plaintiff Martin Meissner prays for judgment in his favor, and against Defendant BF Labs Inc., on all claims; that the Court award him the full extent of his damages, including direct damages of $62,632.19 and consequential damages in excess of $5,000,000.00; for costs and attorneys’ fees; and for all such other relief as the Court deems just and equitable.”

This is probably why Butterfly Labs insists his damage claims are “speculative” and dismisses them outright.

Call in the jury

Butterfly Labs blames Meissner for the mess, insisting that his order was not finalised. Although it received the payment in March, it could not tie it to any existing order, as it did not include an order number. The company then waited for Meissner to get in touch, which he did in May.

A Butterfly Labs document sheds more light on the matter: “In the case of the product generation (65nm) that the Plaintiff pre-ordered, BF Labs experienced technical delays in its development that held up manufacturing the new technology at commercial scale”. It continues:

“When BF Labs had resolved the issues and was ready to commit the orders to the final stages of manufacture, an email notice was sent to customers advising that orders would be shipped as produced and that if anyone was unwilling to endure the wait, they had a final opportunity to cancel their order and receive a full refund.”

In addition, the company points out that it increased its prices in April 2013, following a rise in the price of bitcoin. Since Meissner’s order was not finalized, Butterfly Labs assumed it was abandoned when he did not reply to the email notice.

This is not the first legal dispute involving a mining hardware company and it probably won’t be the last. There are always risks involved with pre-ordering untested and unproven silicon, regardless of legal fine print. In this particular case, it may be that both parties share at least part of the blame, but that’s ultimately for a jury to decide.

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