KDH Consulting Group LLC v. Iterative Capital Management L.P. Et Al

Case 1:20-cv-03274-VM Document 28 Filed 05/20/20 Page 1 of 26
UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK
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KDH CONSULTING GROUP LLC, :
:
Plaintiff, : 20 Civ. 3274 (VM)
:
- against - : DECISION AND ORDER
:
ITERATIVE CAPITAL MANAGEMENT L.P., :
et al., :
:
Defendants. :
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VICTOR MARRERO, United States District Judge.
Plaintiff KDH Consulting Group LLC (“KDH”) brought this
action against Iterative Capital Management L.P.
(“Iterative”), Iterative Capital GP, LLC, Iterative OTC, LLC
(“Escher/Iterative OTC”), Iterative Mining, LLC, Brandon
Buchanan, and Christopher Dannen (collectively,
“Defendants”). KDH sought an Order to Show Cause and Temporary
Restraining Order to enjoin Defendants from converting
Iterative Capital, L.P. (the “Partnership”) into an operating
limited liability company (the “Restructuring”) and taking
other actions related to the Restructuring. (See “Complaint,”
Dkt. No. 1; “Memorandum of Law,” Dkt. No. 5.) The Court (Part
I) granted the Temporary Restraining Order on April 27, 2020,
and scheduled the preliminary injunction hearing for May 11,
2020, at 10:00 a.m. (See “TRO,” Dkt. No. 9.) By letter dated
May 1, 2020, Defendants sought immediate relief from the TRO
1
and argued that KDH was unlikely to prevail at the preliminary
injunction hearing. (See “May 1 Letter,” Dkt. No. 14.)
Consistent with the Court’s order (see Dkt. No. 15), KDH
responded by letter on May 4, 2020. (See “May 4 Letter,” Dkt.
No. 17.)
In a telephone conference on May 5, 2020, the Court
alerted the parties of its intent to construe the May 1 Letter
as a motion to dissolve the TRO pursuant to Federal Rule of
Civil Procedure 65(b)(4) (“Rule 65(b)(4)”) (the “Motion”).
(See Docket Minute Entry Dated May 5, 2020.) During the
conference, the Court heard the parties’ arguments regarding
whether KDH had demonstrated irreparable harm and either a
likelihood of success on the merits or sufficiently serious
questions going to the merits to make them fair ground for
litigation and a balance of hardships tipping in KDH’s favor.1
Based on the parties’ arguments and the Court’s review of the
Complaint, the Memorandum of Law, the Declarations of Rika
Khurdayan (see “Khurdayan Decl.,” Dkt. No. 6) and Wayne Hatami
1 See Granny Goose Foods, Inc. v. Brotherhood of Teamsters and Auto Truck
Drivers, 415 U.S. 423, 439 (1974) (“[If] the parties, at the time of the
hearing on the motion to dissolve the restraining order, find themselves
in a position to present their evidence and legal arguments for or against
a preliminary injunction,” then the court “may proceed with the hearing
as if it were a hearing on an application for a preliminary injunction”
in which “the party seeking the injunction bear[s] the burden of
demonstrating the various factors justifying preliminary injunctive
relief . . . .”).
2
(see “Hatami Decl.,” Dkt. No. 272) and accompanying exhibits,
the Motion as set forth in the May 1 Letter, and the May 4
Letter, the Court found that injunctive relief was not
merited. Specifically, the Court found that KDH had not made
a sufficiently compelling showing of irreparable harm, and
further found that the balance of the equities did not weigh
in KDH’s favor. Therefore, the Court granted the Motion to
dissolve the TRO pursuant to Rule 65(b)(4). (See “Order,”
Dkt. No. 18.) The Court indicated that a decision
memorializing its ruling would follow. (Order at 2.) The Court
now issues this Decision setting forth in greater detail the
reasons for its Order.
I. BACKGROUND3
A. KDH’s Allegations
KDH became a limited partner in Iterative Capital, L.P.
(the “Partnership,” and together with Iterative Capital
Master, L.P. and Iterative Mining Master, L.P., the “Fund
Complex”) in January 2018 with a $1,000,000 investment.
Iterative provided KDH with a subscription agreement, a
2 KDH originally filed the Hatami Declaration and its accompanying

exhibits under seal, as permitted (temporarily) by the Court (Part I).
(See Dkt. Nos. 8, 10.) The Court ordered the parties to submit a proposed
protective order (see Dkt. Nos. 19, 23), following which KDH refiled, in
redacted form, the Hatami Declaration and accompanying exhibits (see Dkt.
No. 27).
3 The factual background below derives from the Complaint, the Memorandum
of Law, the Khurdayan Declaration, and the Hatami Declaration. Throughout,

the page numbers of the exhibits to the declarations refer to the page
numbers of the document.
3
limited partnership agreement (“LPA”), and a Private
Placement Memorandum (“PPM”).
KDH alleges that Defendants fraudulently induced it into
investing in a cryptocurrency investment and trading fund by
misrepresenting the purpose of the fund, its prior
performance history, and the liquidity options. Brandon
Buchanan and Christopher Dannen (the “Individual Defendants”)
allegedly promised a highly liquid fund with quarterly
withdrawal rights, with 70 percent of the assets invested in
trading cryptocurrencies and network tokens and the remaining
30 percent invested in cryptocurrency mining operations
including cryptocurrency mining equipment. To the contrary,
KDH alleges, Defendants knew at the time KDH entered the
Partnership that cryptocurrency trading was no longer viable,
and planned to use KDH’s funds for “highly illiquid mining
operations.” (Complaint ¶ 3.) For example, KDH points to a
statement made on December 10, 2019 by a principal of
Iterative, Leo Zhang, indicating that Iterative’s strategy of
focusing on mining (instead of trading cryptocurrencies and
network tokens) was formed in 2016-2017. According to KDH,
Defendants’ offering documents failed to disclose their
primary investment objective and strategy and failed to
reflect Iterative’s actual prior performance.
4
Concurrently with KDH’s initial investment, the
cryptocurrency market (in particular, Bitcoin) declined. When
KDH requested immediate withdrawal, Buchanan assured KDH that
their funds had not yet been invested, that the Fund Complex
would not invest heavily in Bitcoin, and that KDH would be
able to withdraw at any time. Then, to prevent KDH and other
investors from withdrawing funds, Defendants allegedly made
the portfolio illiquid by deviating from the stated
investment strategy and turning to mining, including spending
$6.5 million of the remaining assets on “rapidly depreciating
mining equipment.” (Complaint ¶ 11.) Even though mining was
meant to be a “minor side strategy” comprising “up to 30% of
the assets,” Iterative eventually spent “half of the fund’s
total assets” on the mining equipment. (Complaint ¶ 41;
Memorandum of Law at 3.) This led to losses including
$3,400,000 in depreciation to the mining equipment by the end
of 2019. To pay for the Fund Complex’s shift to mining,
Defendants set aside a substantial part of the funds into a
“side-pocket.” (Complaint ¶¶ 12, 58.) KDH alleges that
Defendants withheld information about what they were doing.
KDH also alleges that Defendants engaged in self-dealing
with their affiliated entities, including Escher/Iterative
OTC (Defendants’ over-the-counter cryptocurrency trading
business) and Iterative Mining LLC (Defendants’ separate
5
mining company). The PPM stated that Escher/Iterative OTC
would have an exclusive right to purchase all the digital
assets produced and owned by Iterative Mining Master, L.P.,
in exchange for “more favorable pricing terms.” (Complaint ¶
46.) But Defendants never disclosed these “more favorable
pricing terms” to KDH and released only vague information
about Escher/Iterative OTC’s operations and regulatory
compliance. KDH alleges that Defendants breached their duty
of good faith and fair dealing by putting the interests of
Escher/Iterative OTC ahead of the interests of the
Partnership, and by “attempting to retrofit” the Fund
Complex’s operations so that any mined digital assets were
funneled to Escher/Iterative OTC, such that Individual
Defendants personally profited. (Complaint ¶ 80.)
In December 2019, Defendants told KDH and the other
investors of their plan to convert the Fund Complex to an LLC
through a series of transactions. The Restructuring would
also consolidate the Fund Complex with Escher/Iterative OTC.
On March 1, 2020, Defendants gave KDH and the other investors
three options: (1) continue as an investor in the new venture,
(2) withdraw from the Fund Complex in exchange for a refund
based on the remaining assets less a deduction for
Restructuring expenses, or (3) receive a pro rata share of
assets-in-kind (digital assets and cryptocurrency mining
6
equipment) less shipping expenses. Defendants asked for KDH’s
and other investors’ consent for the Restructuring by
midnight on April 28, 2020 (the “April 28 Offer”).
B. Order to Show Cause
On April 27, 2020, the Court (Part I) granted a TRO that
(1) enjoined Defendants from carrying out the Restructuring;
(2) enjoined Defendants from acting on the April 28 Offer
(including distributing assets in kind); (3) prohibited
Defendants from destroying documents; (4) enjoined Defendants
from taking any action that would impair the value of the
Fund Complex; and (5) directed Defendants to turn over the
books and records specified in KDH’s demand dated April 14,
2020.4 The Order to Show Cause directed Defendants to address
the relief granted by the TRO in addition to the following
requested relief: redeeming to KDH its portion of the Fund
Complex’s liquid portfolio without charging Restructuring
expenses; enjoining Iterative Capital GP, LLC and its
affiliates from acting as the general partner of the
Partnership; and enjoining Defendants from paying costs
associated with this litigation out of the Fund Complex.
C. Defendants’ Arguments
4 The fifth provision, relating to the production of certain books and

records, was suspended by the Court’s Order dated May 1, 2020. (See Dkt.
No. 16.) The Court notes that the date of the request for books and
records was given in the TRO as April 14, 2018, which appears to be
incorrect. (See Khurdayan Decl. Ex. B.)
7
Defendants wrote to the Court seeking immediate relief
on May 1, 2020. Defendants argue, first, that the TRO is
causing irreparable harm to other investors and to unrelated
businesses named as Defendants. With respect to other
investors, while two thirds have chosen to convert their
investment into an interest in the new entity, one third opted
to liquidate, but cannot do so while the TRO is in place;
these investors’ funds may be imperiled by the TRO due to the
volatility of the market. With respect to unrelated
businesses, Defendants argue that numerous Iterative entities
named as defendants have only a “tenuous relation to the
issues being litigated.” (May 1 Letter at 2.) In particular,
they note that the Complaint does not identify any agreements
between KDH and Escher/Iterative OTC, a separate money
services business that acts as a wholesale principal trading
firm for cryptocurrencies. Yet, as a result of the TRO,
Escher/Iterative OTC’s account has been flagged by trading
partners, resulting in the effective suspension of its
business.
Relatedly, Defendants assert that because money damages
would make KDH whole, KDH cannot demonstrate that it would
suffer irreparable harm such that a TRO or a preliminary
injunction would be appropriate. Defendants note that the law
is clear that monetary damages do not constitute irreparable
8
harm, absent insolvency. Brenntag Int’l Chems., Inc. v. Bank
of India, 175 F.3d 245, 249 (2d Cir. 1999). Separately,
Defendants note that the Partnership would not be liable for
a judgment; in fact, the Partnership is named as a nominal
plaintiff.
Defendants also point out that the only emergency is one
of KDH’s making. KDH had months of advance notice -- since
December 20, 2019 -- of the plan to restructure. KDH received
extensive disclosures, including over 100 pages on March 1,
2020, yet waited until the eve of the April 28 Offer to seek
a TRO ex parte. Defendants also note that they had no notice
of the TRO -- KDH provided Defendants with copies of the
papers only after filing. (May 1 Letter at 4.)
Defendants make several arguments regarding the
appropriateness of venue and the Court’s jurisdiction over
KDH’s claims. They assert that with respect to claims arising
under Delaware Revised Uniform Limited Partnership Act
(“DRULPA”), pursuant to which KDH requested documents,
enforcement actions “shall be brought in the Court of
Chancery” of Delaware, which has “exclusive jurisdiction.”
DRULPA § 17-305.5 More generally, the LPA contains an
5 Defendants contend that not only does the Court not have jurisdiction
over the Section 17-305 claim, but by requiring Defendants to comply with
KDH’s document request pursuant to DRULPA Section 17-305, the TRO imposes
an enormous burden on Defendants and does not merely maintain the status
quo. They point out that KDH does not acknowledge the standard to obtain
9
exclusive venue provision, and Defendants argue that KDH has
thus consented to litigate all claims arising under the LPA
in Delaware Chancery Court.
Lastly, Defendants contend that KDH is not likely to
succeed on the merits. They point to instances where KDH
misquoted the PPM, which, in the section called “Investment
Strategy/Purpose” of the executive summary, states that the
Partnership seeks to appreciate “by investing all of its
investible assets in the Master Funds, which invest, directly
or indirectly, in cryptocurrencies and network tokens, as
well as in mining operations and equipment relating to the
generation thereof.” (May 1 Letter at 5 (quoting Hatami Decl.
Ex. C, at 1).) Defendants point to key places where KDH has
disregarded similar language.
D. KDH’s Response
KDH makes several arguments in its May 4 Letter. In
response to Defendants’ arguments on irreparable harm, KDH
suggests that none of the Defendants could be harmed by
injunctive relief because there was no transaction scheduled
to close on April 28, 2020 -- and in fact, Defendants had
refused to set any deadline for the Restructuring. KDH further
a mandatory injunction, much less attempt to meet it. Furthermore,

Defendants argue that most of the requested documents are beyond the scope
permitted by Section 17-305. Because the Court suspended this provision
of the TRO by Order dated May 1, 2020, the Court need not address the
matter further. (See Dkt. No. 16.)
10
states that Escher/Iterative OTC and Iterative Mining, LLC
(1) would not be affected by the TRO, and (2) were named as
defendants because the Complaint alleges that they benefited
from Defendants’ fraudulent conduct. KDH quotes the March 1,
2020 explanation of the Restructuring, which noted that
“[t]here are inherent conflicts of interest in this offering”
because “affiliates of Iterative will benefit from extending
the existence of the Domestic Fund in the form” of the new
entity. (May 4 Letter at 5-6 (quoting Hatami Decl. Ex. L, at
6).) KDH also states that it would suffer irreparable harm
without injunctive relief by being forced to consent to the
April 28 Offer without the additional disclosures they
requested from Defendants.
In response to Defendants’ arguments regarding the
timing of the TRO and the lack of notice, KDH writes that it
did provide notice to Defendants’ prior counsel. The timing
of the TRO was directly caused by Defendants’ refusal to
provide the books and records requested by KDH, which was
only necessary because the December 20, 2019 notice provided
“absolutely no information . . . about the upcoming
restructuring.” (Id. at 3.)
KDH counters Defendants’ arguments regarding
jurisdiction over its document request by claiming that it is
permitted to inspect books and records under the LPA. (Id. at
11
6 (citing Khurdayan Decl. Ex. B, at 1).) KDH points out that
it is being forced to acknowledge that it has received all
the information it needs. (Id. at 6-7.) With respect to venue,
KDH argues that supplemental jurisdiction permits the Court
to hear its state law claims. Since venue is appropriate for
the Complaint’s federal securities fraud claims, KDH argues,
venue is also appropriate for the state law claims. (Id. at
7.) KDH notes that the LPA’s forum selection clause did not
provide any federal district court with jurisdiction over the
federal securities fraud claims. It also notes that the
Subscription Agreement (through which KDH acquired an
interest in the Partnership) did not have a forum-selection
clause. (Id. at 7-8.)
Finally, with respect to the merits, KDH alleges that
Defendants turned the liquid investment into a “full-blown
mining operation,” which “locked KDH in an illiquid
investment vehicle.” (Id. at 2.) Specifically, instead of
being limited to 30 percent of the assets, Defendants
“expended nearly half of the Fund’s assets on mining
equipment.” (Id.) KDH states that this arrangement permitted
Defendants to profit through Escher/Iterative OTC, the
affiliated trading entity. (Id.)
II. LEGAL STANDARD
12
Under Second Circuit law, “the standard for an entry of
a TRO is the same as for a preliminary injunction.” Herrick
v. Grindr, LLC, No. 17 Civ. 932, 2017 WL 744605, at *2
(S.D.N.Y. Feb. 24, 2017) (quoting Andino v. Fischer, 555 F.
Supp. 2d 418, 419 (S.D.N.Y. 2008)). A court may grant a motion
for a preliminary injunction pursuant to Rule 65 when the
movant has shown “(1) irreparable harm in the absence of the
injunction and (2) either (a) a likelihood of success on the
merits or (b) sufficiently serious questions going to the
merits to make them a fair ground for litigation and a balance
of hardships tipping decidedly in the movant’s favor.”
MyWebGrocer, LLC v. Hometown Info, Inc., 375 F.3d 190, 192
(2d Cir. 2004) (internal quotation marks omitted). “The
showing of irreparable harm is perhaps the single most
important prerequisite for the issuance of a preliminary
injunction.” Kamerling v. Massanari, 295 F.3d 206, 214 (2d
Cir. 2002) (internal quotation marks and alteration omitted).
To demonstrate irreparable harm, the movant must show “an
injury that is neither remote nor speculative, but actual and
imminent and cannot be remedied by an award of monetary
damages.” Estee Lauder Cos. v. Batra, 430 F. Supp. 2d 158,
174 (S.D.N.Y. 2006) (internal quotation marks omitted). “When
considering a motion for a preliminary injunction, unlike a
motion to dismiss, the Court need not accept as true the well-
13
pleaded allegations in Plaintiff[’s] complaint.” Victorio v.
Sammy’s Fishbox Realty Co., No. 14 Civ. 8678, 2014 WL 7180220,
at *4 (S.D.N.Y. Dec. 12, 2014) (citing Incantalupo v. Lawrence
Union Free Sch. Dist. No. 15, 652 F. Supp. 2d 314, 317 n.1
(E.D.N.Y. 2009)).
The purpose of an injunction is to preserve the status
quo pending a trial on the merits. Tom Doherty Assocs., Inc.
v. Saban Entm’t, Inc., 60 F.3d 27, 34 (2d Cir. 1995). In
particular, “[e]x parte temporary restraining orders . . .
should be restricted to serving their underlying purpose of
preserving the status quo and preventing irreparable harm
just so long as is necessary to hold a hearing, and no
longer.” Granny Goose Foods, 415 U.S. at 439 (internal
citation omitted). Rule 65(b)(4) permits the party adverse to
the TRO to “move to dissolve or modify the order” with 2 days’
notice to the party who obtained the TRO. If the adverse party
moves to dissolve or modify the TRO, “[t]he court must then
hear and decide the motion as promptly as justice requires.”
Rule 65(b)(4). A district court need not find proof of changed
circumstances in modifying a temporary restraining order or
preliminary injunction, but rather applies its discretion in
exercising the trial court’s inherent power to modify its
orders. Sierra Club v. U.S. Army Corps of Engineers, 732 F.2d
253, 256-57 (2d Cir. 1984). A court may grant a motion to
14
dissolve a TRO pursuant to Rule 65(b)(4) if the TRO was
improperly issued. Rabbi Jacob Joseph School v. Province of
Mendoza, 342 F. Supp. 2d 124, 127 (E.D.N.Y. 2004).
III. DISCUSSION
As the Court stated during the May 5, 2020
teleconference, its decision to dissolve the TRO is based on
KDH’s failure to demonstrate irreparable harm as well as the
Court’s finding that the balance of equities tilts in favor
of Defendants.
A. Irreparable Harm
The Court must first determine whether the damages
alleged by KDH are economic in nature. It is well-established
that money damages do not constitute irreparable harm absent
“a finding of current or imminent insolvency” of the defendant
such that any judgment may be uncollectible. CapLOC, LLC v.
McCord, No. 17 Civ. 5788, 2019 WL 1236415, at *3 (S.D.N.Y.
Mar. 18, 2019) (quoting WestLB AG v. BAC Florida Bank, No. 11
Civ. 5398, 2012 WL 3135825, at *5 (S.D.N.Y. Aug. 2, 2012)).
In its Memorandum of Law, KDH points to three irreparable
injuries that it claims it will suffer absent a TRO and
preliminary injunction: (1) injury arising from the proposed
Restructuring and forced consent negating KDH’s right to
properly calculate and redeem its investment, (2) injury
arising from the proposed Restructuring materially changing
15
KDH’s position, including distribution rights and interest in
the new post-Restructuring entity, and (3) injury caused by
Defendants’ refusal to turn over books and records.
(Memorandum of Law at 16.)
The first two of these are plainly economic injuries.
KDH urges a contrary result, but the cases it cites are
distinguishable.
Several of the cases KDH cites in support of its claim
that its injuries are not economic involve violations of
statutory rights that cannot be redressed with money damages,
and these cases are thus distinguishable. For example, KDH
writes that irreparable harm “can” be found where a
“transaction -- particularly a change-of-control transaction
-- . . . is influenced by noncompliance with the disclosure
provisions of the various federal securities laws.” (May 4
Letter at 7 (quoting MONY Grp., Inc. v. Highfields Capital
Mgmt., L.P., 368 F.3d 138, 147 (2d Cir. 2004)).) But in MONY
Group, the SEC rules in question mandated certain disclosures
to ensure the integrity of shareholder votes; here, KDH cites
no parallel disclosure provision mandated by federal law. See
Litwin v. OceanFreight, Inc., 865 F. Supp. 2d 385, 401
(S.D.N.Y. 2011) (“MONY thus holds only that a legally
deficien[t] proxy statement may give rise to a situation in
which failure to grant injunctive relief would lead to
16
irreparable harm.”). Similarly, in Street v. Vitti, 685 F.
Supp. 379, 384 (S.D.N.Y. 1988), the court found irreparable
harm where plaintiffs were about to be discharged as officers
and would lose their statutory right to inspect corporate
books; the court also found irreparable harm in defendants’
plan to sell shares, which would nullify the plaintiffs’
rights under New York’s dissolution statute. KDH is not an
officer, and points to no similar statutory right; indeed,
the LPA makes clear that the General Partner, Iterative
Capital GP, LLC, must only “establish such standards as it
deems appropriate regarding the access of Limited Partners to
the books and records of the Partnership.” (Hatami Decl. Ex.
B, at 42.) Nor does KDH allege that the corporate records
will be lost or destroyed, or that the Restructuring affects
its future business prospects. See, e.g., Mgmt. Techs., Inc.
v. Morris, 961 F. Supp. 640, 650 (S.D.N.Y. 1997) (finding
possible irreparable harm where corporate records would be
lost); Alcatel Space, S.A. v. Loral Space & Commc’ns Ltd.,
154 F. Supp. 2d 570, 584 (S.D.N.Y. 2001) (loss of minority
shareholders’ rights and breach of agreement leading to loss
of potential future business constituted non-monetary harm).
Cases involving effects beyond the entities in question
are also distinguishable. In an antitrust case, Consolidated
Gold Fields PLC v. Minorco, S.A., injunctive relief was
17
necessary to prevent an irreversible change to a global
market. 871 F.2d 252, 261 (2d Cir. 1989). KDH quotes
Consolidated Gold Fields for the proposition that a court
cannot “unscramble the eggs,” but while it is true that tender
offers cannot easily be undone, any harm that flows from
permitting the April 28 Offer to proceed would affect only
the Partnership’s investors, and would result in money
damages only. Thus, “‘unscrambling’ -- restoration to pre-
transaction positions -- is not necessary to remedy any harm
if [KDH] succeeds on its claims. [KDH] can be compensated
with an amount of money consistent with the economic harm
suffered.” Solus Alt. Asset Mgmt. LP v. GSO Capital Partners
L.P., No. 18 Civ. 232, 2018 WL 620490, at *6 (S.D.N.Y. Jan.
29, 2018).
KDH next argues more generally that “the dilution of a
party’s stake in, or a party’s loss of control of, a business”
constitutes irreparable harm. (Memorandum of Law at 20
(quoting Int’l Equity Invest., Inc. v. Opportunity Equity
Partners Ltd., 441 F. Supp. 2d 552, 563 (S.D.N.Y. 2006)
(internal quotation marks omitted)).) KDH claims that it will
have a diluted stake in the new post-Restructuring entity,
and that Defendants are “dissipating” its capital account in
the existing Partnership. (Memorandum of Law at 21.) But KDH
is not being forced to invest in the new entity: It can choose
18
instead to exit. Nor did KDH have “the right to participate
in the management” of the Partnership, such that its right is
under threat. Int’l Equity Invest., Inc., 441 F. Supp. 2d at
563 (internal quotation marks omitted). (See Hatami Decl. Ex.
B, at 29 (specifying that limited partners “may not take any
part in the management, control or operation” of the
Partnership).) To the extent Defendants are indeed
“dissipating” its capital account, that claim can be
redressed with money damages.
The Court also finds that KDH’s third claimed
irreparable injury -- stemming from its inability to see
Defendants’ books and records before being required to
consent to the April 28 Offer -- can be redressed monetarily.
In its May 4 Letter, KDH all but abandons its argument that
it is entitled to the requested documents under DRULPA Section
17-305, and argues more generally that its demand was
reasonable, permitted by the LPA, and in line with Supreme
Court precedent allowing district courts to issue orders to
enforce a state-granted right to inspect corporate records.
The Court is not persuaded. KDH cites no provision of the LPA
that would govern its request, and as noted above, the LPA
makes clear that Iterative Capital GP, LLC must only
“establish such standards as it deems appropriate regarding
the access of Limited Partners to the books and records of
19
the Partnership.” (Hatami Decl. Ex. B, at 42.)6 In the Supreme
Court case cited by KDH, Stern v. South Chester Tube Co., 390
U.S. 606, 609 (1968), the question was whether a federal court
may enforce a right under state law that permitted inspection
of a corporation’s books and records; the case did not pertain
to the effect of an exclusive venue provision. Even if KDH
were entitled to see such documents, and even assuming its
demand was reasonable, the Court finds that any violation of
this right could be redressed with money damages. Indeed, KDH
couches this injury in economic terms when it writes that “if
the requested documents are not provided and KDH does not
consent to the offer,” it will be “expelled from the Fund
with no proper liquid refund equal to the value of KDH’s
remaining investment.” (May 4 Letter at 7.)
Thus, all three of KDH’s claimed irreparable injuries
are redressable with money damages and insufficient to
support injunctive relief absent insolvency. “The standard
for demonstrating insolvency is high” and requires “more than
allegations of the defendant’s ‘weak financial condition.’”
CapLOC, LLC, 2019 WL 1236415, at *3 (quoting Seda Specialty
Packing Corp. v. Am. Safety Closure Corp., No. 95 Civ. 4745,
1995 WL 404821, at *2 (S.D.N.Y. July 7, 1995)). Defendants
6 In contrast, the new post-Restructuring entity does seem to provide for

such inspection. (Hatami Decl. Ex. L, App’x II, at 19.)
20
argue that KDH does not show, as required to meet the
“insolvency” exception to the prohibition on money damages,
that the risk of insolvency is “likely and imminent.” (May 1
Letter at 4 (quoting CRP/Extell Parcel I, L.P. v. Cuomo, 394
F. App’x 779, 782 (2d Cir. 2010).) In this regard, KDH writes
that the Partnership is “at risk of dissipation of all of its
funds.” (Memorandum of Law at 16.)
Again, the Court is not persuaded.7 While the Fund has
“never been profitable,” Defendants’ projection of KDH’s
refund was still $225,120.18 as of April 14, 2020, which
suggests the Fund is not insolvent. (Memorandum of Law at
19.) To be sure, the refund estimation does not account for
restructuring expenses, and, according to the Hatami
Declaration, “Iterative admits [the Restructuring expenses]
may deplete the Partnership’s assets and KDH’s capital
account.” (Hatami Decl. ¶ 48.) But the evidence for Hatami’s
statement appears to be scant. In Exhibit M to the Hatami
Declaration, an email exchange between Buchanan and KDH’s
representative, Buchanan declines to confirm whether
Restructuring expenses will be equal or less than $100,000,
7 The Court notes that some recent cases have cast doubt on whether the
“insolvency exception” to the prohibition on money damages is still valid.
See Vis Vires Grp., Inc. v. Endonovo Therapeutics, Inc., 149 F. Supp. 3d
376, 393 (E.D.N.Y. 2016) (casting doubt on the insolvency exception
following Grupo Mexicano de Desarrollo S.A. v. Alliance Bond Fund, Inc.,
527 U.S. 308 (1999)). The Court need not decide whether the exception
exists, because even assuming it does, KDH has not demonstrated imminent
insolvency.
21
though he estimates that that figure would be “on the high
end,” and that, of that amount, “KDH would be responsible for
approximately 6.5% as their pro-rata share of costs.” (Hatami
Decl. Ex. M, at 1-2.) And while Exhibit N shows an “Ending
Net Asset Value” of $0.00, Exhibit O contains a strongly
worded warning that “[t]his does not mean the value of your
investment was $0,” but only that, according to the Fund
Complex’s administrator, $0 is the “proper method of showing”
that the Restructuring is “intended to be consummated based
on the March 31, 2020 valuations.” (Hatami Decl. Ex. O, at
B2.) Instead, “the value of your investment as of March 31,
2020 is shown as the withdrawal (redemption) value,” which
puts the value of KDH’s investment, as KDH concedes, at
$225,120.18. (Hatami Decl. Ex. N, at 1.) Furthermore, while
the March 1, 2020 communication discloses that dissolving
legal entities in the Cayman Islands may involve additional
unknown costs, it also states that if expenses exceed the
reserves, the new post-Restructuring entity would bear the
cost. (Hatami Decl. Ex. L, at C16-C17.) Based on these figures
and statements, the Court finds that KDH has not met its
“high” burden of demonstrating insolvency, as opposed to
merely a weak financial condition.
In short, KDH cannot demonstrate irreparable harm. In
contrast, Defendants would, in fact, be injured by injunctive
22
relief. KDH claims that Defendants would not experience harm
from any injunctive relief because no transaction was
scheduled to close on April 28, and so the TRO was not
preventing any transaction. This argument is belied by the
terms of the TRO, which prevented Defendants, along with
“their agents, representatives, employees, or anyone else
acting on their behalf, . . . from proceeding with the
Restructuring.” (TRO at 3.) In this day and age, complicated
corporate transactions such as the Restructuring do not
generally close, out of the blue, without significant pre-
closing work; because the injunction would prevent Defendants
from proceeding with the Restructuring, it could cause
Defendants harm by increasing costs and uncertainty. As for
the claim that no transaction was scheduled to close on April
28, again the TRO itself contradicts KDH’s argument, as it
“enjoined and restrained” Defendants “from acting on their
offer currently set to expire on April 28, 2020, including
distributing assets in kind.” (TRO at 3.) Indeed, if the TRO
did not prevent Defendants from undertaking efforts related
to that transaction and the Restructuring, it is unclear what
the purpose of the TRO would have been.
Defendants also persuasively argue that the TRO is
causing harm to defendant Escher/Iterative OTC, a “separate,
FinCen-regulated money services business.” (May 1 Letter at
23
2.) Defendants note that the “Complaint does not identify any
agreements between Iterative OTC and Plaintiff, nor could it,
as there were no such agreements.” (May 1 Letter at 2.) Yet,
as a result of the TRO, Escher/Iterative OTC’s “account has
been flagged by multiple trading partners, thereby limiting
its liquidity pool, access to markets and ability to offer
competitive pricing.” (May 1 Letter at 3.) KDH replies that
Escher/Iterative OTC is “not affected by the TRO, which only
concerns the restructuring and access to material information
about such restructuring,” but the Court finds this assertion
dubious in light of Defendants’ clear statement to the
contrary.
Therefore, KDH has not demonstrated that it will suffer
an irreparable injury absent injunctive relief, while
Defendants have demonstrated that injunctive relief would
cause them harm.
B. Balance of the Equities
Setting aside the merits of KDH’s claims, the Court would
deny injunctive relief solely on the basis of its holding
that KDH has not demonstrated irreparable harm. But even if
KDH could demonstrate that its claims raise sufficiently
serious questions to make them fair ground for litigation,
the balance of equities does not tilt in KDH’s favor.
24
In balancing equities, the Court is struck by the effect
of injunctive relief on other investors. Defendants note that
one third of investors have opted to liquidate their
investments. Injunctive relief would freeze this process.
Because the Partnership is invested in a particularly
volatile class of assets, preventing it from transacting
business could place the assets of all investors in peril, in
addition to preventing the one third of exiting investors
from proceeding with the liquidation process.
Finally, the Court also finds KDH’s claim of emergency
to be entirely unpersuasive. KDH had notice, as of the
December 20, 2019 communication to investors, that the Fund
would be restructured in order “to scale [its] mining
operation” (Hatami Decl. Ex. K, at 1), and KDH had notice of
the substance of the April 28 Offer (i.e., the three exit
options) as of March 1, 2020. (Hatami Decl. Ex. L, at 1, 4.)
The urgency stems instead from Defendants’ refusal to provide
all of the documents KDH demanded, but even here, the equities
do not tilt in KDH’s favor. Despite knowing about its exit
options as of March 1, 2020, KDH waited until April 14, 2020
-- just two weeks before the April 28 Offer -- to request
books and records. That same day, April 14, 2020, Buchanan
notified KDH’s counsel that it would only comply in part with
the document request. (Khurdayan Decl. Ex. C, at 1-2.) KDH
25
filed for injunctive relief almost two weeks later. Even if
KDH were entitled to the requested documents -- and as noted
above, the Court has serious doubts in that regard -- the
equities do not favor KDH.
IV. ORDER
Accordingly, it is hereby
ORDERED that defendants’ motion so deemed by the Court
as described above (Dkt. No. 14) to dissolve the Temporary
Restraining Order (Dkt. No. 9) dated April 27, 2020 pursuant
to Federal Rule of Civil Procedure 65(b)(4) is GRANTED.
SO ORDERED.
Dated: New York, New York

20 May 2020
_________________________
VICTOR MARRERO
U.S.D.J.
26

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Case 1:20-cv-03274-VM Document 28 Filed 05/20/20 Page 1 of 26

UNITED STATES DISTRICT COURT

VICTOR MARRERO, United States District Judge.

Plaintiff KDH Consulting Group LLC (“KDH”) brought this

action against Iterative Capital Management L.P.

(“Iterative”), Iterative Capital GP, LLC, Iterative OTC, LLC

(“Escher/Iterative OTC”), Iterative Mining, LLC, Brandon

Buchanan, and Christopher Dannen (collectively,

“Defendants”). KDH sought an Order to Show Cause and Temporary

Restraining Order to enjoin Defendants from converting

Iterative Capital, L.P. (the “Partnership”) into an operating

limited liability company (the “Restructuring”) and taking

other actions related to the Restructuring. (See “Complaint,”

I) granted the Temporary Restraining Order on April 27, 2020,

and scheduled the preliminary injunction hearing for May 11,

May 1, 2020, Defendants sought immediate relief from the TRO

and argued that KDH was unlikely to prevail at the preliminary

injunction hearing. (See “May 1 Letter,” Dkt. No. 14.)

responded by letter on May 4, 2020. (See “May 4 Letter,” Dkt.

In a telephone conference on May 5, 2020, the Court

alerted the parties of its intent to construe the May 1 Letter

as a motion to dissolve the TRO pursuant to Federal Rule of

Civil Procedure 65(b)(4) (“Rule 65(b)(4)”) (the “Motion”).

(See Docket Minute Entry Dated May 5, 2020.) During the

conference, the Court heard the parties’ arguments regarding

whether KDH had demonstrated irreparable harm and either a

likelihood of success on the merits or sufficiently serious

questions going to the merits to make them fair ground for

litigation and a balance of hardships tipping in KDH’s favor.1

Based on the parties’ arguments and the Court’s review of the

Complaint, the Memorandum of Law, the Declarations of Rika

Khurdayan (see “Khurdayan Decl.,” Dkt. No. 6) and Wayne Hatami

(see “Hatami Decl.,” Dkt. No. 272) and accompanying exhibits,

Letter, the Court found that injunctive relief was not

a sufficiently compelling showing of irreparable harm, and

in KDH’s favor. Therefore, the Court granted the Motion to

dissolve the TRO pursuant to Rule 65(b)(4). (See “Order,”

Dkt. No. 18.) The Court indicated that a decision

memorializing its ruling would follow. (Order at 2.) The Court

now issues this Decision setting forth in greater detail the

reasons for its Order.

KDH became a limited partner in Iterative Capital, L.P.

(the “Partnership,” and together with Iterative Capital

Master, L.P. and Iterative Mining Master, L.P., the “Fund

Complex”) in January 2018 with a $1,000,000 investment.

Iterative provided KDH with a subscription agreement, a

2 KDH originally filed the Hatami Declaration and its accompanying

of Law, the Khurdayan Declaration, and the Hatami Declaration. Throughout,

limited partnership agreement (“LPA”), and a Private

Placement Memorandum (“PPM”).

KDH alleges that Defendants fraudulently induced it into

investing in a cryptocurrency investment and trading fund by

misrepresenting the purpose of the fund, its prior

performance history, and the liquidity options. Brandon

Buchanan and Christopher Dannen (the “Individual Defendants”)

allegedly promised a highly liquid fund with quarterly

withdrawal rights, with 70 percent of the assets invested in

trading cryptocurrencies and network tokens and the remaining