Judge Dismisses Class Action Claims Against Ripple in XRP Securities Case

Key Insights:

  • Ripple’s summary judgment motion wins, dismissing federal and state class claims in a significant procedural victory.
  • XRP’s classification as a security remains unresolved, with a jury set to decide its status under the Howey test.
  • Legal experts highlight contradictions and the need for federal legislation on cryptocurrency regulation amidst ongoing uncertainty.

Ripple Labs Inc. achieved a pivotal victory in the federal class action suit in the Northern District of California. Presided over by Judge Phyllis J. Hamilton, the case (4:18-cv-06753-PJH) drew significant attention from the XRP community due to its potential impact on the digital asset’s classification under US securities law. Ripple’s motion for summary judgment was granted, leading to the dismissal of both federal and state class claims alleging that XRP was sold as an unregistered security.

Pro-XRP lawyer Fred Rispoli explained the ruling’s implications via social media: “Win for Ripple in the Oakland class action. Judge grants Ripple’s summary judgment motion on federal class claims for unregistered securities as well as the state law securities claims. But these were procedural wins.”

Key Decisions and Procedural Wins

Judge Hamilton’s ruling represents a procedural win for Ripple, as it dismissed the class action claims. However, the court refrained from making a definitive legal determination on whether XRP is a security. Instead, this issue remains unresolved, with the court stating that a jury must decide if XRP meets all three prongs of the Howey test, which determines what constitutes a security under US law.

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Fred Rispoli emphasized: “The class action is now over at the district court level. As to whether XRP is a security, however, the Court held it is for a jury to decide whether all three prongs of the Howey test are met.”

Rispoli further noted that the unresolved individual claim by one plaintiff will likely proceed to trial, though it may settle due to the low damages and potential negative jury verdict if the plaintiff prevails. “To sum up: Court says whether XRP is a security in the context of retail buyers on an exchange is for the jury to decide and not a matter of law,” Rispoli added.

Contradictions and Ongoing Uncertainty

The opinion has sparked varied responses from legal experts, including Marc Fagel, who pointed out contradictions with another ruling, highlighting the complexities in the legal interpretation of digital assets. Fagel stated: “Just read the opinion. Directly contradicts Torres on programmatic sales (though would’ve been more interesting if the court had gone a step further and found them to be securities sales as a matter of law rather than punting to the jury).”

Ripple’s procedural victory does not resolve the overarching legal questions surrounding XRP and its status as a potential security. As Rispoli noted, the broader issue at stake is the need for federal legislation to address the regulatory treatment of cryptocurrencies. “Ultimately, crypto world needs to keep pressure on getting federal legislation, because we are on track to having XRP be a security in California but not in New York,” he stated.

Detailed Examination of the Ruling

The lawsuit involves class action claims against Ripple Labs Inc., its subsidiary XRP II, LLC, and Ripple’s CEO Bradley Garlinghouse. The central allegations concern the sale and marketing of XRP, which plaintiffs argue was offered and sold as an unregistered security.

Judge Phyllis J. Hamilton’s ruling made several key decisions in favor of Ripple. The federal securities claims were dismissed under the statute of repose, concluding that the claims were barred as the offering occurred more than three years before the lawsuit was initiated. Similarly, state claims were dismissed due to the plaintiff’s failure to demonstrate privity, a necessary element for these claims under California law. All class claims for both federal and state allegations were dismissed, significantly reducing the scope of the lawsuit against Ripple.

However, Ripple’s motion for summary judgment on the individual claim against CEO Garlinghouse for making allegedly misleading statements about his investment in XRP was denied. This claim will proceed to trial, focusing on whether Garlinghouse’s statements influenced investors’ expectations and investment decisions.