Smith v. Bradford — Entry #5: MOTION to Consolidate Cases by Defendants Roger P

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 1   MARK J. CONNOT (10010)
     COLLEEN E. MCCARTY (13186)
 2   FOX ROTHSCHILD LLP
     1980 Festival Plaza Drive, Ste 700
 3   Las Vegas, NV 89135
     Telephone: 702.262.6899
 4   Facsimile: 702.597.5503
     mconnot@foxrothschild.com
 5   cmccarty@foxrothschild.com
     Counsel for Defendants Zachary K. Bradford,
 6   Lori L. Love, S. Matthew Schultz, Roger P. Beynon,
     Larry McNeill, Thomas L. Wood, Amer Tadayon, and
 7   Nominal Defendant CleanSpark Inc.
 8

 9                               UNITED STATES DISTRICT COURT
10                                    DISTRICT OF NEVADA
11   IN RE CLEANSPARK, INC. DERIVATIVE                Case No.: 2:21-cv-01004-GMN-BNW
     LITIGATION,
12                                                    Consolidated with:
                                                      Case No.: 2:21-cv-01181-GMN-BNW
13   This Document Relates to:
                                                      Pending Consolidation with:
14          ALL ACTIONS                               Case No. 2:23-cv-00358-ART-BNW
                                                      Case No. 2:23-cv-00315-JAD-NJK
15                                                    Case No. 2:23-cv-00444-GMN-NJK and
                                                      Case No. 2:23-cv-00445-GMN-BNW
16

17
                                                     DEFENANTS’ MOTION TO
18                                                   CONSOLIDATE

19           Defendants Zachary K. Bradford (“Bradford”), S. Matthew Schultz (“Schultz”), Roger P.
20   Beynon (“Beynon”), Lori L. Love (“Love”), Larry McNeill (“McNeill”) Thomas L. Wood
21   (“Wood”), and Amer Tadayon (“Tadayon”) (collectively, “Individual Defendants”) and nominal
22   Defendant CleanSpark, Inc. (“CleanSpark” and with the Individual Defendants, “Defendants”)
23   hereby move this Honorable Court under Federal Rule of Civil Procedure 42(a)(2) of the Federal
24   Rules of Civil Procedure (“FRCP”) and the Joint Stipulation and Order Consolidating Related
25   Action and Appointing Co-Lead Counsel (Dkt. No. 10) (“Consolidation Order”) for an Order
26   consolidating the matters styled Iraci v. Bradford, et al., Case No. 2:23-cv-00315-JAD-NJK
27   (“Iraci Matter”), Atanasoff v. Bradford, et al. Case No. 2:23-cv-00358-ART-BNW (“Atanasoff
28   Matter”), Smith v. Bradford, et al., Case No. 2:23-cv-00445-GMN-BNW (“Smith Matter”), and


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 1   France v. Bradford, et al., Case No. 2:23-cv-00444-GMN-NJK (“France Matter” and
 2   collectively with the Iraci, Atanasoff, and Smith Matters, “Subsequent Related Actions”) with
 3   the first filed shareholder derivative action filed on behalf of CleanSpark, styled In re CleanSpark
 4   Inc. Derivative Litigation, Case No. 2:21-cv-01004-GMN-BNW (“Consolidated Action”),
 5   (previously consolidated with Case No. 2:21-cv-01181-GMW-BNW). The Subsequent Related
 6   Actions share common questions of law and fact with the Consolidated Action and the separately
 7   filed proceedings can and should be considered together as a matter of convenience and judicial
 8   and party economy.
 9           This Motion to Consolidate is made and based on the following Memorandum of Points
10   and Authorities; the pleadings and papers on file herein, and any oral argument the Court may
11   permit at a hearing of this matter.
12           DATED: March 24, 2023                           FOX ROTHSCHILD LLP
13
                                                             /s/ Colleen E. McCarty
14                                                           MARK J. CONNOT (10010)
                                                             COLLEEN E. MCCARTY (13186)
15                                                           1980 Festival Plaza Drive, Ste. 700
                                                             Las Vegas, NV 89135
16                                                           Telephone: 702.262.6899
                                                             Facsimile: 702.597.5503
17                                                           mconnot@foxrothschild.com
                                                             cmccarty@foxrothschild.com
18                                                           Counsel for Defendants Zachary K.
                                                             Bradford, S. Matthew Schultz, Lori L.
19                                                           Love, Robert P. Beynon, Larry McNeill,
                                                             Thomas L. Wood, Amer Tadayon, and
20                                                           Nominal Defendant Cleanspark, Inc.
21

22                      MEMORANDUM OF POINTS AND AUTHORITIES
23                                                   I.
24                                          INTRODUCTION
25           Defendants respectfully request the Court continue its consolidation efforts in this matter
26   by further ordering consolidation with the instant Consolidated Action the four recently filed
27   actions noted above, the Iraci Matter pending before the Honorable Jennifer A. Dorsey, the
28   Atanasoff Matter, pending before the Honorable Anne R. Traum, and the France and Smith
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 1   Matters, pending before this Court. In addition to these cases involving identical and/or
 2   overlapping factual and legal issues, events, and questions of law, and defendants, as well as
 3   duplicative claims, the Consolidation Order (Dkt. No. 10) entered by this Court, requires that all
 4   related shareholder derivative actions – which inarguably include the Subsequent Related
 5   Actions – be further consolidated with the Consolidated Action.
 6           As even a cursory review of the operative complaints makes clear, all of the claims at
 7   issue are premised on allegedly false or misleading statements or omissions made by virtually
 8   identical parties 1 related to CleanSpark’s acquisition of ATL Data Centers. These are the very
 9   same allegations that make up the subject matter of the Consolidated Action currently before this
10   Court. For these reasons, Defendants respectfully request, pursuant to FRCP 42 and the
11   Consolidation Order, that the Subsequent Related Actions be consolidated with the Consolidated
12   Action for all purposes, which will benefit both the Court and the parties.
13                 FACTUAL BACKGROUND AND PROCEDURAL POSTURE
14           On May 26, 2021, plaintiff Andrea Ciceri filed a shareholder derivative action herein on
15   behalf of CleanSpark, captioned Ciceri v. Bradford, et al., Case No. 2:21-cv-01004-GMN-BNW
16   (Dkt. No. 1) (the “Ciceri Matter”). The Ciceri Matter was assigned to this Court and Magistrate
17   Judge Brenda Weksler. Thereafter, on June 22, 2021, plaintiff Mark Perna filed a second
18   shareholder derivative action on behalf of nominal defendant CleanSpark in the United States
19   District Court for the District of Nevada, captioned Perna v. Bradford, et al., Case No. 2:21-cv-
20   01181-GMN-BNW (Dkt. No. 1) (the “Perna Matter”).
21           Pursuant to the Consolidation Order (Dkt. No. 10), dated June 29, 2021, this Court
22   consolidated the Ciceri and Perna Matters and designated the complaint filed in the Ciceri Matter
23   as the operative complaint. Paragraph 11 of the Consolidation Order specifically provides as
24   follows:
25
                    This Order shall apply to each related shareholder derivative action
26                  involving the same or substantially the same allegations, claims,
27   1
      Defendant Lori Love is not named as a defendant in the Atanasoff matter. Defendant Amer
28   Tadayon is only named as a defendant in the France Matter. With those exceptions, all other
     defendants in the Consolidated Action, and the Subsequent Related Actions are identical.
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 1                  and defendants, and arising out of the same, or substantially the
                    same, transactions or events as the Consolidated Action, that is
 2                  subsequently filed in, removed to, reassigned to, or transferred to
                    this Court (“Potential Subsequent Related Derivative Action”).
 3                  When a shareholder derivative action that properly belongs as part
                    of In re CleanSpark, Inc. Derivative Litigation, Lead Case No.
 4                  2:21-cv-01004-GMN-BNW, is hereafter filed in this Court,
                    removed to this Court, reassigned to this Court, or transferred to
 5                  this Court from another court, this Court requests the assistance of
                    counsel in calling to the attention of the Clerk of the Court the
 6                  filing, removal, reassignment, or transfer of any case that might
                    properly be consolidated as part of In re CleanSpark, Inc.
 7                  Derivative Litigation, Lead Case No. 2:21-cv-01004-GMN-BNW,
                    and counsel are to assist in assuring that counsel in subsequent
 8                  actions receive notice of this order. Unless otherwise ordered, the
                    terms of all orders, rulings, and decisions in the Consolidated
 9                  Action shall apply to Potential Subsequent Related Derivative
                    Actions filed in this Court, removed to this Court, reassigned to
10                  this Court, or transferred to this Court from another court.
11
     (Dkt. No. 10 at ¶ 11).
12

13           On February 24, 2023, plaintiff Nicholas Iraci filed a third shareholder derivative action

14   on behalf of nominal defendant CleanSpark in Nevada’s Eighth Judicial District Court, captioned

15   Iraci v. Bradford, et al., Case No. A-23-866172-C. A true and correct copy of the complaint in

16   the Iraci Matter is attached hereto as Exhibit A. On February 28, 2023, defendant Schultz filed

17   a Petition for Removal and Notice of Petition for Removal, removing the Iraci Matter to the U.S.

18   District Court. The Iraci Matter is now pending before the Honorable Jennifer A. Dorsey,

19   captioned Iraci v. Bradford, et al., Case No. 2:23-cv-00315-JAD-NJK. On March 6, 2023,

20   defendant Schultz filed a Notice of Related Case (Dkt. No. 46), requesting that the Iraci Matter

21   be transferred to this Court and added to the Consolidated Action as required pursuant to the

22   Consolidation Order.

23           On March 1, 2023, plaintiff Eric Atanasoff filed a fourth shareholder derivative action on

24   behalf of CleanSpark, also in Nevada’s Eighth Judicial District Court, captioned Atanasoff v.

25   Bradford, et al., Case No. A-23-866492-C. A true and correct copy of the complaint in the

26   Atanasoff Matter is attached hereto as Exhibit B. Thereafter, on March 7, 2023, defendant

27   Schultz filed a Petition for Removal and Notice of Petition for Removal, removing the Atanasoff

28   Matter to the U.S. District Court. The Atanasoff Matter is now pending before the Honorable
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 1   Anne R. Traum, captioned Atanasoff v. Bradford, et al., Case No. 2:23-cv-00358-ART-BNW.
 2   On March 9, 2023, defendant Schultz filed a Notice of Related Case (Dkt. No. 48), requesting
 3   that both the Iraci and Atanasoff Matters be transferred to this Court and added to the
 4   Consolidated Action as required pursuant to the Consolidation Order.
 5           On February 21, 2023, plaintiff Brandon Smith filed a fifth shareholder derivative action
 6   on behalf of nominal defendant CleanSpark in Nevada’s Eighth Judicial District Court, captioned
 7   Smith v. Bradford, et al., Case No. A-23-866051-C. A true and correct copy of the complaint in
 8   the Smith Matter is attached hereto as Exhibit C. On March 23, 2023, Defendants filed a Petition
 9   for Removal and Notice of Petition for Removal, removing the Smith Matter to the U.S. District
10   Court. The Smith Matter is now pending before this Court, captioned Smith v. Bradford, et al.,
11   Case No. 2:23-cv-00445-GMN-BNW. On March 24, 2023, Defendants filed a Notice of Related
12   Case (Dkt. No. 50), requesting that the Smith Matter be added to the Consolidated Action as
13   required pursuant to the Consolidation Order.
14           On March 8, 2023, plaintiff Travis France filed a sixth shareholder derivative action on
15   behalf of nominal defendant CleanSpark in Nevada’s Eighth Judicial District Court, captioned
16   France v. Bradford, et al., Case No. A-23-866925-C. A true and correct copy of the complaint
17   in the France Matter is attached hereto as Exhibit D. On March 23, 2023, Defendants filed a
18   Petition for Removal and Notice of Petition for Removal, removing the France Matter to the U.S.
19   District Court. The France Matter is now pending before this Court, captioned France v.
20   Bradford, et al., Case No. 2:23-cv-00444-GMN-NJK. On March 24, 2023, Defendants filed a
21   Notice of Related Case (Dkt. No. 51), requesting that the France Matter be added to the
22   Consolidated Action as required pursuant to the Consolidation Order.
23           As the relevant pleadings make clear, the Consolidated Action and the Subsequent
24   Related Actions are all derivative actions brought on behalf of nominal defendant CleanSpark,
25   and the cases involve significantly overlapping defendants: Bradford, Love, Schultz, Beynon,
26   McNeill, and Wood. Although the Consolidated Action has been pending since June 21, 2021,
27   the matter was stayed from January 21, 2022 until January 5, 2023, and discovery has not yet
28   advanced. Further, the Subsequent Related Actions, like the Consolidated Action, allege that
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 1   Defendants made material misstatements and omissions in the same public statements and
 2   regarding the same event: i.e., CleanSpark’s acquisition of ATL Data Centers, Inc. And, they all
 3   rely heavily on the same reports by a short-seller, Culper Research, to support their claims.
 4            The Subsequent Related Actions and the Consolidated Action also allege significantly
 5   overlapping claims in connection with the above-alleged acts and omissions: i.e., the
 6   Consolidated Action alleges breach of fiduciary duty, unjust enrichment, abuse of control, gross
 7   mismanagement, and waste of corporate assets, the Iraci Matter alleges breach of fiduciary duty,
 8   aiding and abetting breach of fiduciary duty, and unjust enrichment, the Atanasoff Matter alleges
 9   breach of fiduciary duty and unjust enrichment, the Smith Matter alleges breach of fiduciary duty
10   and unjust enrichment, and the France Matter alleges breach of fiduciary duty, unjust enrichment,
11   and corporate waste.
12            Finally and critically, the Consolidated Action and the Subsequent Related Actions all
13   ask the Court to afford relief to the same party: nominal defendant CleanSpark. Accordingly, the
14   Consolidated Action and the Subsequent Related Actions involve identical and/or overlapping
15   defendants, factual and legal issues, events, and questions of law, as well as duplicative claims,
16   warranting consolidation.
17                                                  II.
18                                            ARGUMENT
19         A. The Legal Standard Applicable to a Motion to Consolidate is Met Herein
20            1. The Court Has Broad Discretion to Consolidate Cases.
21            Consolidation is available “[i]f actions before the court involve a common question of
22   law or fact[.]” FRCP 42(a). Under FRCP 42(a), courts have broad discretion to order
23   consolidation and must balance their interests in saving time against any inconvenience, delay
24   or expense that consolidation of cases may cause. See Huene v. U.S., 743 F.2d 703, 704 (9th Cir.
25   1984). Consolidation is particularly appropriate where such action will save the parties time and
26   money and avoid the possibility of inconsistent outcomes. See BAE Systems Mobility &
27   Protection Sys. v. Armorworks Enterprises, LLC, 2009 WL 995862, *1 (D. Ariz. 2009).
28   ///
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 1           2. Under This Standard, Consolidation of the Cases in Question Is Warranted.
 2           As is evident from a review of the complaints filed in the Subsequent Related Actions,
 3   attached hereto as Exhibits A – Exhibit D, and the operative complaint in the Consolidated
 4   Action (Dkt. No. 1), the matters carry the identical and/or overlapping allegations, with the same
 5   evidence to be developed in discovery. The parties are the same in each action, with the
 6   exception of Defendant Love, who was only not named in the Atanasoff Matter, and Defendant
 7   Tadayon, who was only named in the France Matter, and the testimony of the same individuals
 8   will be sought in each case. The allegations arise from the same and/or overlapping transactions
 9   and occurrences and the suits were all brought ostensibly for the benefit of the same entity:
10   CleanSpark. However, the pursuit of copycat litigation in multiple courts is hardly beneficial to
11   CleanSpark when consolidation will save the parties duplication of efforts and the corresponding
12   time and money expenditures that will surely result.
13           In the final analysis, consolidation by this Court of the instant Consolidated Action and
14   the Subsequent Related Actions will allow for the most expeditious resolution of all outstanding
15   disputes, will serve the interests of judicial and party economy, and will avoid the possibility of
16   inconsistent judgments. Indeed, the possibility of inconsistent rulings is not merely academic.
17   To the contrary, with multiple, nearly identical complaints pending before different courts, the
18   threat of inconsistent rulings – for example on motions to dismiss what are effectively identical
19   complaints – is very real. Moreover, consolidation will not prejudice any of the parties where
20   discovery has not yet commenced. Accordingly, this Court should grant the instant Motion to
21   Consolidate, pursuant to FRCP 42(a).
22       B. The Consolidation Order Also Requires Consolidation
23           The Consolidation Order entered by this Court on June 29, 2021 contemplated
24   circumstances such as these where related shareholder derivative actions “involving the same or
25   substantially the same allegations, claims, and defendants, arising out of the same or
26   substantially the same, transactions or events as the Consolidated Action” were subsequently
27   filed in, removed to, reassigned to, or transferred to the U.S. District Court. (Dkt. No. 10 at ¶
28   11). The Order provides that such cases should be properly consolidated with the Consolidated
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 1   Action and requests the assistance of counsel to call to the attention of the court any related
 2   actions. Id. Moreover, the Order uses the mandatory language that it “shall apply” to each
 3   related derivative action. As set forth herein, there can be no reasonable dispute that the
 4   Subsequent Related Actions are related to the Consolidated Action. Therefore, pursuant to the
 5   Consolidation Order, Defendants respectfully request that they be consolidated with the
 6   Consolidation Action for all purposes.
 7                                                 III.
 8                                            CONCLUSION
 9       For the foregoing reasons the Defendants respectfully request that the Court grant this Motion
10   to Consolidate and order that the Iraci Matter, Case No. 2:23-cv-00315-JAD-NJK, the Atanasoff
11   Matter, Case No. 2:23-cv-00358-ART-BNW, the France Matter, Case No. 2:23-cv- 00444-
12   GMN-NJK, and the Smith Matter, Case No. 2:23-cv-00445-GMN-BNW, be consolidated with
13   the Consolidated Action, Case No. 2:21-cv-01004-GMW-BNW for all purposes, including trial.
14    DATED: March 24, 2023
15

16                                               FOX ROTHSCHILD LLP

17                                               /s/ Colleen E. McCarty
                                                 MARK J. CONNOT (10010)
18                                               COLLEEN E. MCCARTY (13186)
19                                               1980 Festival Plaza Drive, Ste. 700
                                                 Las Vegas, NV 89135
20                                               mconnot@foxrothschild.com
                                                 cmccarty@foxrothschild.com
21                                               Counsel for Defendant Zachary K. Bradford,
                                                 S. Matthew Schultz, Lori L. Love, Robert P.
22                                               Beynon, Larry McNeill, and Thomas L.
                                                 Wood, Amer Tadayon, and Nominal
23                                               Defendant Cleanspark, Inc.
24

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 1                                  CERTIFICATE OF SERVICE
 2     I hereby certify that I am an employee of Fox Rothschild LLP and that on the 24th day of March
 3   2023, pursuant to Rule 5(b) of the Federal Rules of Civil Procedure, I served a true and correct
 4   copy of the foregoing DEFENDANTS’ MOTION TO CONSOLIDATE via electronic
 5   transmission via the Federal Court Filing System (CM/ECF).
 6

 7
                                                 /s/ Deborah L. Pressley
 8                                                An employee of Fox Rothschild LLP
 9

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