Judge Allows Lawsuit Centered on Dissolved Blockchain Auditing Startup to Proceed

On Monday, March 11, 2024, the United States District Court for the District of Maryland heard arguments in the case of Li Fen Yao v. Robert Chen, Otter Audits LLC, and RC Security LLC.

The lawsuit, filed by Li Fen Yao, administrator of the estate of her late husband Sam Mingsan Chen, stems from a dispute involving a dissolved cybersecurity company called OtterSec LLC that performed software audits, including audits of code used in blockchain and cryptocurrency applications.

OtterSec was founded in early 2022 by Robert Chen, a 19-year-old from Washington State, and David Chen, a 16-year-old from Maryland. They met competing in cybersecurity competitions. Since David was a minor, the ownership interest was put under his father Sam Chen, a Maryland resident. Over its first two months, OtterSec was very successful, generating over $1 million in revenue and hiring employees, including some based in Maryland. However, disagreements arose between Robert and David/Sam over the direction of the company.

In April 2022, Robert began negotiations to sell OtterSec to Jump Trading, a cryptocurrency firm, without informing the others. In May, Robert asked Sam to sell his ownership stake, but he refused unless given financial details about the potential Jump deal. In June, Robert dissolved OtterSec over the objections of David and Sam. Sam Chen later died in a car accident in July 2022.

After dissolution, Robert formed two new companies called Otter Audits and RC Security in South Dakota that continued operations similar to OtterSec. However, the estate of Sam Chen alleged this was done improperly without paying out what Sam was owed. The lawsuit claims trademark infringement and other torts against Robert and the new companies.

At issue in the current court motion was whether the court had personal jurisdiction over the out-of-state defendants. The estate argued the new companies were effectively a continuation of OtterSec, so its connections to Maryland should be extended to them. In a lengthy analysis, the court agreed the facts supported this conclusion, establishing personal jurisdiction and allowing the case against all defendants to move forward.

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