Coin Flip

“Who here has heard of bitcoin currency?”

David Affeld was conducting voir dire for a case in which his client, bitcoin strategist Michael Ho, was suing Marathon Digital Holdings, the biggest publicly traded bitcoin mining company in the world, for breach of contract. Affeld asked for a show of hands. Most went up. He then followed with something more pertinent: “Some people think it’s the wave of the future, some people think it’s scammy. Can I see a show of hands? Who here thinks bitcoin is scammy?”

Many of the hands went up again.

“Until I had this case, I didn’t know much about bitcoin or bitcoin mining,” says Affeld, a trial attorney focusing on business litigation at Affeld England & Johnson in Los Angeles. “It seemed like the same kind of people that got into mortgage brokering prior to the collapse in 2008 or bought houses in Las Vegas when the market heated up. It seemed like the fad of the day. I came to find out it functions a lot like other currencies.”

Of the prospective jurors, one was an astrophysicist who said he didn’t like bitcoin mining because of the enormous amount of energy it consumes. Affeld thought he was smart and made salient points. “As much as I respected him,” he adds, “I had to make him my first choice to take off the jury.”

Turns out the massive power required to operate a bitcoin mining facility—a data center where fleets of tens of thousands of computers solve algorithms 24 hours a day—was at the heart of this case.

“I couldn’t take the chance that he’s on my jury,” Affeld says. “Even though Marathon Digital was the largest publicly traded bitcoin mining company in the world, and our guy was the bitcoin specialist, some of the jurors had the idea that we were the bitcoin person.”

His client, Ho, was a strategist who traveled the world looking for cheaper sources of power while learning the engineering aspects of supplying energy to a mining facility with 30,000 machines. When he found a little-used power plant in Hardin, Montana, with 100-megawatt capacity, he came up with the idea to build a data center right next to it.

“The project was to connect the power directly so there’s no middleman, no loss of efficiency and additional ways things can go wrong, and to provide the user much less expensive energy,” Affeld says. “Mike had relationships with people throughout the industry and put together a packaged project he presented to a potential customer, Marathon, which they immediately ran with, without including or compensating Ho, in violation of the noncircumvention agreement he’d had them sign.”

The information was exchanged and the stock then skyrocketed. I’m not a big believer in coincidences. Occam’s razor explains most things.

Though Affeld knew very little about bitcoin when his friend and former law partner Gregg Zucker introduced him to Ho, he quickly understood that Ho was a credible person, that his contract had been violated, and that Marathon’s market capitalization rate rose based on Ho’s idea. “The information was exchanged and the stock then skyrocketed,” he says. “I’m not a big believer in coincidences. Occam’s razor explains most things.”

Thus, when the case finally made it to trial in the U.S. District Court for the Central District of California, after two years of COVID delays, the strategy was to focus on the timeline showing Marathon pursued the project immediately after Ho disclosed it—and on Ho’s credibility and character.

“We thought he would be a good witness, and he was a good witness,” says Edward E. Johnson, Affeld’s law partner, who handled the expert witnesses on both cross and direct examinations. “He was on the stand for maybe an afternoon with us and got crossed for almost a whole day. It was interesting. I think Marathon thought the cross went well for them. They got him to admit he’d made a couple of statements they kind of blew up as being these big false statements, even though they really were nothing. We felt it was a victory for us because he told his story very well on direct. He came across as very knowledgeable and very earnest. In the cross, he got beat up hour after hour, and his story held up.”

That may have had something to do with the way his lawyers prepared him.

“We spent a lot of time with him,” Johnson adds. “Obviously we looked at the documents and made sure he remembered exactly how everything happened, but it’s also working with him on how to not get flustered. You can never predict everything that is going to happen in cross. You just want your witness to not come across as defensive and at the same time not get pushed around. It’s very easy to get bullied or lose your way, so a lot of it is just preparing emotionally to stand up to that.”

“Mainly we tried to humanize what Mike’s contribution was,” Affeld says. “It’s not just that he typed out an email and sent some data. He spent years, and he put his money where his mouth was. He personally went to places like the facility in Montana in the dead of winter to go see for himself what the state of the infrastructure was.”

At trial, Marathon did not present any live witnesses other than the current CEO; instead it relied on video recordings from depositions to make its case.

“People underestimate how important it is to have credible witnesses there live and not rely on what people said in emails or on videotape, because it sends the message that those witnesses don’t really care about this fight,” Affeld says. “They don’t really believe in the cause.”

Another distinction between the two trial presentations was the number of documents Affeld used in his opening and closing, as well as a large, detailed timeline to make the visual case for circumvention.

“Opposing counsel mostly just talked,” Johnson says. “We felt it was more effective to walk through and show the evidence and make sure the jury remembered the different documents they’d been shown. The timeline was really important.”

One of the more technical aspects of the case was their argument for damages.

“The interloping parties were given three million shares of stock, restricted for six months. The damages here were the value of those shares when the restricted period ended—when Mike would have sold them,” Johnson says. “Because the deal was so valuable, it made the stock go way up. When the six months expired, the stock was worth $138 million. That’s where our damages number came from. Marathon argued that as a matter of law the stock had to be valued the day it was issued—which Marathon argued was $5.4 million—or the date the deal closed. We briefed that a few months before trial, and the court agreed that it was a question the jury had to decide.”

The jury came back in just over three hours. Johnson watched U.S. District Court Judge Sunshine Sykes slowly flip through pages—a good sign, he hoped, since a “no contract, no breach” verdict would not have taken long to find.

Sykes handed the pages to the clerk, who began reading the verdict in Ho’s favor. When she got to the question of damages, she said, “$1 million.”

Johnson’s heart dropped with disappointment.

Then the clerk apologized and said she’d misspoken. The correct number was $138 million—their exact ask.

“You’re always grateful when it comes in well,” Affeld says of the unanimous verdict. “We were nervous about one or two of the jurors, and they turned out to be staunchly on our side. You can never tell.”

Johnson feels the verdict is an important one not just for Michael Ho but for cryptocurrency—a new industry with uncertain regulations that have invited some people to play fast and loose. “If you make a promise, you have to keep it,” he says.

Affeld says it may be too early to talk about impact.

“We’re a long way from the end of the road,” he says. “I’m confident Marathon is intending to appeal, so we’re probably a year and a half from knowing if it’s flipped on us or going to be affirmed. It’s not life changing until the end of the case, but it is satisfying. It can be frustrating to be a lawyer dealing with the posturing part of litigation. The trial part is where it’s time to show what’s actually true.”