Court Rules on Motions in Bitcoin Mining Rig Dispute Between Block Mining Inc. and Hosting Source LLC

News | June 27, 2024 By:

On Friday, June 14, 2024, the United States District Court for the Western District of Washington issued an order on two motions in a dispute between Block Mining Inc. and Hosting Source LLC.

The case involved over 1,600 computer rigs owned by Block Mining that were used for cryptocurrency mining. In July 2021, the two companies entered into an agreement where Hosting Source would house and operate the rigs at their mining facility in East Wenatchee, Washington. Under the terms, Hosting Source would power up the rigs and maintain certain conditions to allow them to efficiently perform cryptographic functions and mine bitcoin.

In early 2023, Hosting Source was notified that Block Mining had defaulted on a separate loan involving the rigs. Hosting Source then began reducing the power output to the rigs. Block Mining cured the delinquency in February 2023 but Hosting Source continued operating the rigs on low power, despite requests to restore full power as outlined in the agreement.

In November 2023, Hosting Source terminated the agreement regarding 402 of the rigs. The parties arranged for their removal by January 2024, with Block Mining consenting under the belief that full power would be restored to the remaining 1,106 rigs. However, Hosting Source allegedly never did so and later terminated the entire agreement. Hosting Source then proposed a removal schedule to take the remaining rigs out in batches through July 2024 due to a contract provision limiting removals to 400 rigs per month.

Disagreements emerged over fees and access. In March 2024, Block Mining informed Hosting Source it intended to retake possession within 72 hours as permitted by the agreement, but upon arriving at the facility it found the site abandoned with no personnel. As a result, Block Mining was unable to recover its rigs. It then filed suit against Hosting Source alleging breach of contract, conversion, trespass to chattels, and seeking a permanent injunction.

The order ruled on two pending motions. It granted in part and denied in part Hosting Source’s motion to dismiss Block Mining’s claims of conversion, trespass to chattels, and permanent injunction. While dismissing the injunction claim, the court found Block Mining’s factual allegations for the tort claims sufficient to survive dismissal at this stage. However, it also granted Block Mining’s motion to dismiss Hosting Source’s breach of contract counterclaim, finding issues with subject matter jurisdiction and failure to state a valid claim.

Please contact BlockTribune for access to a copy of this filing.