This week, the Ripple Labs legal team removed a pending securities lawsuit pertaining to the regulatory nature of XRP, the native cryptocurrency of the Ripple blockchain, to federal court.
The representatives of Ripple argued that the class action lawsuit was initiated by a group of investors with no geographical limitations and as such, the case should not be handled by a state court.
Skadden, Arps, Slate, Meagher & Flom litigation partner Peter Morrison emphasized that because the amount of the controversy exceeds $5 million and was brought on by more than 100 members, Ripple Labs can rightfully remove the lawsuit to federal court.
“A putative class action may be removed to the appropriate federal district court if (1) the action purports to be a ‘class’ action brought on behalf of 100 or more members; (2) any member of a class of plaintiffs is a citizen of a state different from any defendant; and (3) the amount in controversy exceeds $5 million.”
According to Jake Chervinsky, a government enforcement defense and securities litigation attorney at Kobre & Kim, the move of the legal team of Ripple Labs to bump a securities lawsuit involving XRP to federal court is “brilliant.”
Citing the report of Law.com, Chervinsky said:
“Ripple’s legal team showing some tactical brilliance here. It’s hard to explain the procedural maneuver in one tweet & I’m not going to thread this, but suffice to say it’s a seriously crafty attempt to go federal. Might not work, but slick regardless.”
If the class action lawsuit stayed in the state court of California, Chervinsky stated that it could still cover a nationwide class action lawsuit. He stated the Ripple Labs legal team needed a way to justify the relocation of the class action from state court to federal court.
“State courts exercise jurisdiction over residents of other states all the time. It’s not unusual for a nationwide class action to be resolved in state court. Also, the Securities Act of 1933 gives state and federal courts concurrent jurisdiction over private civil claims,” he said, arguing that class action lawsuits can be dealt with at the state court level.
I can't speak to their odds of winning since the case is still so young & I don't know all the facts, but it's fair to say Ripple's lawyers think they have better odds of winning in federal court than in state court (or else they wouldn't be trying so hard to remove the case).
— Jake Chervinsky (@jchervinsky) November 9, 2018
Chversinky explained that the Ripple Labs team likely views the odds of winning the class action lawsuit higher in federal court than in state court, as the team placed a significant effort in removing the case.
If the federal court of the US rules in favor of Ripple Labs in the class action lawsuit, then it would provide clarity on the regulatory nature of XRP for the first time in the country’s history, and the company could clarify once and for all that XRP is not considered a security under existing laws in the US.
Ripple Labs Legal Team Confident
Morrison claimed the plaintiffs did not admit that a lack of information about the nature of XRP transactions caused confusion in the process of investing in the asset and as such, the scope of the lawsuit filed by the plaintiffs remains unclear.
“Plaintiffs do not allege that they lacked information about the nature of these transactions. Nevertheless, Plaintiffs claim that they were somehow injured because Defendants were allegedly required to register XRP as a ‘security’ with the [SEC] but failed to do so.”
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