Crypto Caselaw Minute — 9/5/2018

Stephen Palley
Sep 5, 2018 · 3 min read

Happy belated Labor Day! I don’t know what you were doing over the long weekend, but I was reading about bitcoin, meatspace, the class action fairness act and Slippery Jim DiGriz. Your weekly crypto case summaries follow.

Bitcoin and the perils of “meatspace” … or crypto won’t save you from prison if to try to buy Ricin from undercover FBI agents on the “Dark Net.” United States v. Cheng Le, No. 16–819-cr, 2018 U.S. App. LEXIS 24162 (2d Cir. Aug. 27, 2018).

A common media meme about Bitcoin is that its use makes committing crimes easier. While criminal conduct may be easier for some if they don’t have to meet in person, Bitcoin alone won’t save a criminal from prison. In U.S. v. Cheng Le the Defendant was convicted under the Biological Weapons Anti-Terrorism Act for attempting to acquire ricin (“a biological toxin derived from the seeds of the castor oil plant”) in a “Dark Net” marketplace. He made a deal with an undercover FBI agent and “agreed to pay for the order with the equivalent of $300 in Bitcoin.” And the defendant was (predictably?) picked up by the FBI after he picked up the package (which actually contained a vitamin bottle with a make believe Ricin pill) from a UPS store in Manhattan. Bitcoin is no protection from meatspace (physical reality) — maybe it even gave the Defendant a false sense of security? (If he had been a fan of Harry Harrison’s Slippery Jim DiGriz, the Defendant would never have made this mistake — in a stainless steel world, only a stainless steel rat can survive).

Class action against crypto company Ripple involving alleged “never ending ICO” of XRP remains in federal court: presence of a securities act claim did not bar defendant from removal based on state law claims that independently satisfied the Class Action Fairness Act. Coffey v. Ripple Labs Inc., No. 18-cv-03286-PJH, 2018 U.S. Dist. LEXIS 135585 (N.D. Cal. Aug. 10, 2018).

Much of the heavy legal lifting in crypto-currency litigation has nothing to do with the nature of the underlying assets. This latest opinion in one of the Ripple lawsuits is an example. The plaintiff sued Ripple in state court alleging 4 causes of action — two arising under the Federal Securities Act, and two under California Securities law. Defendant removed the case to Federal Court and Plaintiff moved to remand the case. The Court said that it was faced with a narrow issue, and one of first impression: “[w]hether the presence of Securities Act claims bars a defendant from removing an action pursuant to § 1453 based on state law claims that independently satisfy CAFA’s jurisdictional requirements.” Answering yes, the Court denied the Plaintiff’s motion to remand. Crypto-plaintiffs in ICO and related class-action litigation are faced with a tactical choice — if you believe that this Court is correct, do you include state law claims and face removal? It’s accepted wisdom by many in the Plaintiff’s bar that state court is preferable to federal. Whether that is always true is debatable, as is whether giving up state law claims for an assumed tactical benefit is too. (If you ask me, state unfair trade practices act claims have a lot of potential exposure — and in some states treble damages and attorneys fees).

But can you use bitcoin in the prison commissary? Corley v. Posey, No. CV 18–00501-PHX-DGC (JZB), 2018 U.S. Dist. LEXIS 135369 (D. Ariz. Aug. 9, 2018).

Forget about Goldman Sachs or Circle — you know that Bitcoin has made it to the big times when it appears in pro se prisoner petitions. In Corley v. Posey, a plaintiff alleged violation of constitutional rights by the Maricopa County Sheriff and his legal services. As damages, he sought money, “613 ounces of gold, and 133 shares [sic.] of Bitcoin.” The Court threw the whole thing out and didn’t get into the issue of bitcoin as damages. Will we one day see a court order a state actor to pay damages in bitcoin? In concept, it shouldn’t be a problem but follow this blog and you’ll be the first to know.


Disclaimer: Any opinions expressed here are mine alone, aren’t legal advice, and may not be shared by my current employer, colleagues, clients or fishing companions. Also, I may change my mind: “I contain multitudes.”

Written by

Itinerant slant rhymer. Lawyer. “I contain multitudes”.

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