Armijo v. Ozone Networks, Inc.
| Decision Date | 19 January 2023 |
| Docket Number | 3:22-cv-00112-MMD-CLB |
| Parties | ROBERT ARMIJO, Plaintiff, OZONE NETWORKS, INC., et al., Defendants. |
| Court | U.S. District Court — District of Nevada |
Plaintiff Robert Armijo sued Defendants Ozone Networks, Inc., doing business as Opensea; Yuga Labs, LLC, doing business as Bored Ape Yacht Club (“BAYC”); and LooksRare after Plaintiff's non-fungible tokens (“NFTs”) were stolen. (ECF No. 62.) Before the Court are Ozone Networks's motion to dismiss (ECF No. 70)[1] and Yuga Labs's motion to dismiss (ECF No. 74).[2] As further explained below, because the Court finds that it does not have personal jurisdiction over Yuga Labs, and the economic loss doctrine bars Plaintiff's claims against Ozone Networks, the Court will grant both motions to dismiss.
The following allegations are adapted from the First Amended Complaint (“FAC”) (ECF No. 62). Plaintiff alleges that “[t]his action arises out of Defendants OpenSea and LooksRare's failure to implement common sense and reasonable security measures to prevent the foreseeable fraud and sale of stolen [NFTs] on their online NFT marketplaces,” as well as “from Defendant BAYC's failure to monitor its proprietary and exclusive ape club in order to deny entry to individuals whose access is predicated on a stolen BAYC NFT.” (Id. at 2.) “NFTs are uniquely identifiable digital assets whose authenticity has been certified on a blockchain.” (Id.) “NFT marketplaces, such as OpenSea and LooksRare, are virtual [platforms] that allow digital collectors [ ] to buy, sell, swap, and create NFTs.” (Id.) “BAYC created, developed, and initially sold the BAYC NFTs,” which depict “images of apathetic-looking apes, each with their own unique characteristics and properties.” (Id. at 4.) BAYC operates a virtual BAYC club where “the key to membership . . . is ownership of a BAYC NFT (or affiliate NFT).” (Id.)
Plaintiff is a resident of Incline Village, Nevada and was the owner of three BAYC NFTs that he had purchased on the OpenSea marketplace in November 2021 and January 2022. (Id. at 8, 13-14.) On February 1, 2022, Plaintiff attempted to trade one of his NFTs and received an offer on a Discord site from a user. (Id. at 33.) The Discord user sent Plaintiff a purported link to the NFT Trader website, and Plaintiff clicked on the link and then on a button to approve the trade. (Id.) When nothing happened, Plaintiff tried to approve the trade a few more times. (Id.) Plaintiff then noticed that his three NFTs had vanished from his digital wallet and “realized he was the victim of a phishing attack.” (Id. at 34.) The Discord user had sent Plaintiff a link to a fake website, and Plaintiff had inadvertently allowed the user access to his digital wallet every time he had tried to approve the trade. (Id.)
Plaintiff then attempted to contact OpenSea's customer service on their Discord server to obtain help in locating his stolen NFTs. (Id.) Plaintiff also “went to the BAYC Discord server and created a help ticket on BAYC's customer service channel.” (Id.) A BAYC employee responded and explained that “the only thing BAYC could do was reach out to OpenSea to try and expedite [Plaintiff's] help tickets.” (Id. at 35.) About two hours after the theft occurred, one of Plaintiff's stolen NFTs was sold on OpenSea. (Id.) About four hours after the sale, an OpenSea customer representative contacted Plaintiff, “explaining that OpenSea would freeze the three BAYC NFTs that had been stolen from [Plaintiff],” preventing them from being “bought or sold on OpenSea's marketplace.” (Id.) “However, this would not prevent the stolen NFTs from being purchased or traded on any other NFT marketplaces.” (Id.) Plaintiff's other two stolen NFTs were subsequently sold on LooksRare. (Id. at 36.)
As pertinent to Yuga Labs's motion to dismiss for lack of personal jurisdiction, Plaintiff alleges the following. “Defendant BAYC was a Delaware limited liability company with its principal place of business in Alexandria, Virginia.” (Id. at 8.) “On February 22, 2022, Yuga Labs, LLC converted to a Delaware corporation and is now Yuga Labs, Inc.” (Id.) “At all times relevant to this lawsuit, BAYC transacted business in Nevada.” (Id.) “This Court has general and/or specific personal jurisdiction over BAYC because BAYC purposefully directs its conduct at Nevada and Nevada residents.” (Id. at 9.) “BAYC maintains a club that includes members in Nevada, including [Plaintiff].” (Id.) “BAYC utilizes multiple interactive websites to engage with its club members who reside in Nevada, including [Plaintiff].” (Id.) “BAYC has engaged in and is engaging in conduct that has and had a direct, substantial, reasonably foreseeable and intended effect of causing injury to persons in Nevada.” (Id.)
“BAYC also purposefully avails itself of the privilege of conducting activities within Nevada.” (Id.) ” (Id.) “BAYC created and controls an exclusive and active club the members of which include Nevada residents, like [Plaintiff].” (Id.) Any person who buys a BAYC NFT becomes a BAYC club member, regardless of whether they purchased the BAYC NFT from Yuga Labs directly or from a third-party seller. (Id. at 15.) “BAYC maintains substantial and ongoing relationships with its club members who reside in Nevada and has created continuing obligations to them by offering and promising exclusive access to merchandise, gifts, opportunities, and sales of all new BAYC products and experiences.” (Id. at 9.)
“BAYC uses a multitude of interactive websites to communicate and conduct commercial transactions” with BAYC club members. (Id. at 28.) “BAYC communicates with BAYC club members through multiple Twitter accounts and Discord servers.” (Id.) “Beyond the provision of customer support services, the BAYC Twitter and Discord accounts serve the vital purpose of notifying BAYC club members of new products, services, projects, airdrops, etc. that will be made available to BAYC club members and the public.” (Id. at 29.) “Due to the prevalence of scams and hacks on Twitter and Discord, BAYC is always very careful to provide detailed instructions for BAYC club members and nonmembers to follow, along with verified links to the interactive websites where the commercial transactions will occur.” (Id.) “The following is a noncomprehensive list of the interactive websites BAYC uses or has used to conduct commercial transactions with BAYC club members and nonmembers:
“BAYC also partners with and/or implicitly allows third parties to solicit its club members and the public in Nevada and engage with BAYC club members in Nevada through the use of advertisements, airdrops, and exclusive commercial opportunities.” (Id. at 9.) “Upon information and belief, in July of 2021, a large advertising campaign featuring BAYC ‘apes' and the BAYC logo was conducted in Las Vegas, Nevada,” including billboards and bus stop posters. (Id. at 26.) On March 16, 2022, ApeCoin, “the de facto cryptocurrency of the BAYC ecosystem,” was launched. (Id. at 27.) “According to BAYC, ApeCoin DAO [defining “decentralized autonomous organization”] is the entity responsible for releasing ApeCoin.” (Id.) “BAYC club members were instructed to go to apecoin.com to claim [free] ApeCoin, which was then airdropped into their digital wallets.” (Id.) “On April, 11, 2022, Coinbase-a popular cryptocurrency trading platform- announced via Twitter that it is ‘creating an interactive three-part film featuring the [BAYC] and [ApeCoin] communities.” (Id. at 28.) “BAYC club members holding BAYC NFTs were invited to submit their apes along with their made[-]up character descriptions for consideration as characters in the films.” (Id.)
Plaintiff asserts three claims against Yuga Labs: (1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; and (3) negligence. (Id. at 54-55, 61.)
As pertinent to Ozone Networks's motion to dismiss, Plaintiff alleges the following damages. “The theft of [his] BAYC NFTs deprived [him] of the NFTs he owned and their significant monetary values,” as well as “his legal interest in membership in the BAYC club and the privileges associated with it.” (Id. at 52, 60.) “The theft . . . also deprived [Plaintiff] of the commercialization rights he possessed in his underlying Bored Ape and Mutant Ape images” and “the ability to earn future profits from his BAYC NFTs.” (Id. at 53.)
Plaintiff asserts three claims against Ozone Networks (and LooksRare): (1) negligence; (2) negligent supervision and training; and (3) negligent hiring. (Id. at 56, 63, 65.)
The Court first addresses Yuga Labs's 12(b)(2) motion to dismiss for lack of personal jurisdiction. Because the Court finds that it does not have personal jurisdiction over Yuga Labs, it may not-and does not-reach the merits of Yuga Labs's 12(b)(6) motion to dismiss. The Court lastly addresses Ozone Networks's 12(b)(6) motion to dismiss, ultimately finding that the economic loss doctrine bars all of Plaintiff's claims against Ozone Networks.
“Personal jurisdiction must exist for each claim asserted against a defendant.” Action Embroidery Corp. v. Atl Embroidery, Inc., 368 F.3d 1174, 1180 (9th Cir. 2004) (citation omitted). A two-part analysis governs whether...
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