Coffey v. Ripple Labs Inc.

• Decision Date: 10 August 2018
• Docket Number: Case No. 18-cv-03286-PJH
• Citation: 333 F.Supp.3d 952
• Parties: Ryan COFFEY, Plaintiff, v. RIPPLE LABS INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

333 F.Supp.3d 952

Ryan COFFEY, Plaintiff,

v.RIPPLE LABS INC., et al., Defendants.

Case No. 18-cv-03286-PJH

United States District Court, N.D. California.

Signed August 10, 2018

James Quinn Taylor-Copeland, Taylor-Copeland Law, San Diego, CA, for Plaintiff.

Peter Bradley Morrison, Virginia Faye Milstead, Skadden Arps Slate Meagher and Flom LLP, Los Angeles, CA, Andrew J. Ceresney, Mary Jo White, DeBevoise and Plimpton LLP, New York, NY, John M. Neukom, Skadden, Arps, Slate, Meagher & Flom LLP, Palo Alto, CA, for Defendants.

ORDER DENYING MOTION TO REMAND

Re: Dkt. No. 16

PHYLLIS J. HAMILTON, United States District Judge

This is a putative securities class action brought by plaintiff Ryan Coffey against defendants Ripple Labs, Inc. ("Ripple"), XRP II, LLC, a subsidiary of Ripple, and Bradley Garlinghouse, CEO of Ripple. Compl. at 1, ¶ 13. Plaintiff filed this action in the San Francisco Superior Court on May 3, 2018. On June 1, 2018, defendants removed this action pursuant to the Class Action Fairness Act ("CAFA"), under 28 U.S.C. § 1453 ("Removal of Class Actions"). See Dkt. 1.

Plaintiff's motion to remand came on for hearing before this court on August 1, 2018. Plaintiff appeared through his counsel, James Taylor-Copeland. Defendants appeared through their counsel, Peter Morrison. Having read the papers filed by the parties and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby DENIES plaintiff's motion, for the following reasons.

BACKGROUND

In 2013, Ripple created a digital currency called XRP. Compl. ¶ 20. According to the complaint, unlike other cryptocurrencies, such as Bitcoin and Etherium, Ripple fully generated 100 billion XRP prior to its distribution. Compl. ¶¶ 2, 20. As of June 30, 2015, Ripple held approximately 67.51 billion XRP and all individuals—including Ripple's founders—held 32.49 billion XRP. Compl. ¶ 24.

Plaintiff alleges that in 2013, defendants began selling XRP to the general public and wholesale to larger investors in a "never ending ICO"—initial coin offering. Compl. ¶¶ 22, 26. In an ICO, digital assets are sold to consumers in exchange for legal tender or other cryptocurrencies. Compl. ¶ 3. Plaintiff alleges that "the XRP offered and sold by defendants have all the traditional hallmarks of a security" and in fact is a security within the meaning of Securities Act of 1933 (the "Securities Act") and/or the California Corporations Code. Compl. ¶¶ 100-111, 133, 136, 139, 143. Accordingly, plaintiff contends that defendants "never ending ICO" constituted an unregistered sale of securities in violation of the Securities Act and the California Corporations Code.

On behalf of "all persons or entities who purchased XRP from January 1, 2013 through the present," Compl. ¶ 122, plaintiff asserts four causes of action for: (1) violation of §§ 5 & 12(a)(1) of the Securities Act for the unregistered offer and sale of securities; (2) violation of Cal. Corp. Code §§ 25110 & 25503 for the unregistered offer and sale of securities; (3) violation of § 15 of the Securities Act (control person liability); and (4) violation of Cal. Corp. Code § 25504 (control person liability). Plaintiff seeks, inter alia, rescission of all XRP purchases, damages, and a constructive trust over the proceeds of defendants' alleged sales of XRP. Compl. at 29-30.

DISCUSSION

That said, the present motion and this order address a narrow issue: Whether 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. The court believes that this is an issue of first impression. The parties candidly admit that their research failed to turn up any case directly addressing this question and the court's own research fared no better.

The parties agree that absent plaintiff's Securities Act claims, defendants could properly remove this action under CAFA based on plaintiff's state law claims.¹ Plaintiff, however, argues that § 22(a) of the Securities Act operates as a complete bar on removing any action that includes a Securities Act claim. See 15 U.S.C. § 77v(a) ("§ 22"). Defendant responds that plaintiff's state law claims satisfy CAFA and therefore the entire action may be removed pursuant to § 1453, regardless of § 22(a)'s removal bar.

A. Legal Standard

1. Removal, Remand, and the Class Action Fairness Act

The right to remove a case to federal court is entirely a creature of statute. See Libhart v. Santa Monica Dairy Co., 592 F.2d 1062, 1064 (9th Cir. 1979). In general, the Ninth Circuit "strictly construe[s] the removal statute against removal jurisdiction," and "[f]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance." Gaus v. Miles, Inc., 980 F.2d 564, 566 (9th Cir. 1992) (discussing 28 U.S.C. § 1441 ). "The ‘strong presumption’ against removal jurisdiction means that the defendant always has the burden of establishing that removal is proper." Id. If a defendant fails to meet this burden, the action must be remanded.

Under § 1441(a), sometimes referred to the general removal statute, "a defendant generally may invoke federal removal jurisdiction if the case could have been filed in federal court." 16 James Wm. Moore et al., Moore's Federal Practice—Civil § 107.03 (2018). Such removal is usually grounded in either federal question jurisdiction or diversity jurisdiction—an action between citizens of different states that involves an amount in controversy that exceeds $75,000. See id.; see also 28 U.S.C. §§ 1331 (defining federal question jurisdiction), 1332(a) (defining one type of diversity), 1441 ("Removal of Civil Actions"). Section 1441(a) states:

Generally. —Except as otherwise expressly provided by Act of Congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

28 U.S.C. § 1441(a) (underlining added, " § 1441(a)'s except clause"); see also 28 U.S.C. § 1441(b) ("Removal based on diversity jurisdiction.").

CAFA "relaxed" the diversity requirements for putative class actions. See Dart Cherokee Basin Operating Co., LLC v. Owens, ––– U.S. ––––, 135 S.Ct. 547, 551, 190 L.Ed.2d 495 (2014). Contrary to the Ninth Circuit's general rule for removal, "[n]o antiremoval presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court." Id. at 554. Pursuant to CAFA, a defendant may remove an action under § 1453 if the amount in controversy exceeds $5 million, the putative class has more than 100 members, and the parties are minimally diverse. Id. at 552 ; 28 U.S.C. §§ 1332(d), 1453. Section 1453(b) states:

In general. —A class action may be removed to a district court of the United States in accordance with section 1446 (except that the 1-year limitation under section 1446(c)(1) shall not apply), without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants.

28 U.S.C. § 1453(b). In addition, as discussed below, § 1453(d) sets forth three exceptions to removal under § 1453.

2. The Securities Act of 1933

The Securities Act's "jurisdictional provision" is codified at Section 22(a). See Cyan, Inc. v. Beaver County Employees Retirement Fund, ––– U.S. ––––, 138 S.Ct. 1061, 1068, 200 L.Ed.2d 332 (2018). As relevant here, that section states:

(a) The district courts of the United States and United States courts of any Territory shall have jurisdiction of offenses and violations under this title and under the rules and regulations promulgated by the Commission in respect thereto, and, concurrent with State and Territorial courts, except as provided in 77p [§ 16] of this title with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter.... Except as provided in 77p(c) [§ 16(c) ], no case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States.

15 U.S.C. § 77v(a). The first clause states that both state and federal courts have concurrent jurisdiction over non-§ 16 Securities Act claims. See Cyan, 138 S.Ct. at 1068-70. The second clause, § 22(a)'s "removal bar," generally prohibits the removal—at least under the Securities Act—of cases arising under the Securities Act, except as allowed by § 16(c). See id. at 1066, 1068

Though the § 16 exceptions factor into the analysis below, the parties agree that § 16 does not apply to this section. Rightly so. Section 16(b) "completely disallows (in both state and federal courts) sizable class actions that are founded on state law and allege dishonest practices respecting" the purchase or sale of a nationally traded security listed on a national stock exchange. Cyan, 138 S.Ct. at 1067. Section 16(c) provides for the removal of those actions, so that state law claims precluded by § 16(b) can be dismissed. Id. at 1067-68 ; see also Kircher v. Putnam Funds Trust, 547 U.S. 633, 644, 126 S.Ct. 2145, 165 L.Ed.2d 92 (2006). Regardless of whether XRP is a "security," the parties agree that none of plaintiff's claims meet the other requirements of § 16(b). That agreement places the action outside of § 16(c)'s purview and outside of § 22(a)'s removal bar's lone exception. Thus, as relevant here, § 22(a)'s removal bar remains in play.

B. Analysis

1. Cyan, Kircher, and Luther Do Not Require Remand

Though plaintiff concedes that he could find no case on all fours with the present situation, plaintiff argues that two Supreme Court cases and the Ninth Circuit's decision in Luther v. Countrywide Home Loans...