In re Ripple Labs Inc. Litigation

Background

The court considered four motions under Federal Rule of Evidence 702 and the standards established in Daubert v. Merrell Dow Pharmaceuticals. Defendants moved to exclude plaintiff’s experts Jeremy Clark and Saifedean Ammous. Plaintiff moved to exclude defendants’ expert Alan Schwartz, and defendants moved to exclude plaintiff’s expert Joel Seligman.

The court explained that the party offering expert testimony must show that the testimony is based on sufficient facts or data, reliable principles and methods, and a reliable application of those methods. The testimony must also help the factfinder understand the evidence or decide an issue in the case. The court’s role is to assess reliability and relevance, not to choose between competing opinions when the evidence is admissible.

The court noted that an earlier summary-judgment order had granted defendants’ motion in part and denied it in part. That order dismissed the class claims, leaving an individual misrepresentation claim. Two other expert motions concerning classwide damages therefore became moot, while the parties continued to pursue the four motions addressed here.

Jeremy Clark

Defendants argued that Clark’s opening report lacked a recognized methodology, was irrelevant, and that his rebuttal opinions were improper. Clark’s opening report addressed the XRP ledger’s validator-consensus process, Ripple’s role in the ledger, Ripple’s role in participation, XRP distribution, and incentives for validators.

The court held that Clark’s opening report was sufficiently reliable because he reviewed technical documents, including source code, concerning the XRP ledger, Bitcoin, and Ethereum, and used relevant expertise to identify similarities and differences. The court also held that his testimony was relevant because Ripple’s control or lack of control over the XRP ecosystem could bear on the “common enterprise” part of the Howey test.

The court further found Clark qualified and sufficiently reliable to rebut Allen Ferrell’s testimony concerning whether XRP functions as a “unit of account.” It stated that Clark applied Ferrell’s own definition and methodology to reach a different conclusion. The court denied defendants’ motion to exclude Clark’s testimony, with the possible exception of Clark’s rebuttal testimony concerning Yesha Yadav’s opinion about the domesticity of transactions.

The court stated that it remained unclear whether expert testimony about domesticity would be relevant or necessary after dismissal of the class claims, particularly in analyzing the transactions of the sole plaintiff, Bradley Sostack. It ordered supplemental briefing on whether either side needed expert testimony to establish the domesticity of Sostack’s transactions. The opinion does not provide a final ruling on Clark’s rebuttal opinion concerning Yadav.

Saifedean Ammous

Defendants challenged Ammous’s qualifications and the reliability of his rebuttal opinions concerning Ferrell’s factor model, on-demand liquidity, and whether XRP functions as a currency.

The court held that Ammous was sufficiently qualified based on his nearly decade-long experience as an economics professor and his extensive publications about economics and digital assets. It held that his opinions concerning Ferrell’s factor model were sufficiently reliable, and that disagreements over his use of Austrian-school economic principles were matters for competing testimony and cross-examination rather than exclusion.

The court also held that Ammous’s opinion about on-demand liquidity was sufficiently reliable because it grew out of independent research he had conducted before the litigation. It held that his opinion about XRP’s use as a currency was sufficiently reliable because he had written extensively about whether digital assets have the characteristics of money and offered an opposing analysis under the same framework used by Ferrell. The court denied defendants’ motion to exclude Ammous’s testimony.

Alan Schwartz and Joel Seligman

Plaintiff sought to exclude Schwartz’s testimony, and defendants sought to exclude Seligman’s testimony, arguing that both experts improperly offered legal conclusions.

The court granted plaintiff’s motion to exclude Schwartz. It concluded that the main purpose of Schwartz’s report was to persuade the reader that Ripple’s contracts were legally different from the investment contracts in Howey. Although the report disclaimed an opinion on whether Ripple’s contracts were investment contracts, the court found that the report’s substance included statutory interpretation and arguments about XRP buyers’ legally relevant expectations. The court also questioned the relevance of testimony merely summarizing categories of contracts after the class claims had been dismissed.

The court granted defendants’ motion to exclude Seligman. It found that Seligman’s discussion of the Securities Act, investment contracts, the Howey decision, and the securities-registration process was legal in nature. The court also found that portions concerning startup offerings were either legal opinions or insufficiently connected to the issues for the jury. It reached the same conclusion about Seligman’s rebuttal report, including his opinions addressing the meaning of “investment contract,” XRP buyers’ expectations of profit, XRP’s status as a currency, and whether XRP should be treated as a security under tax and accounting principles. The court did not address defendants’ alternative argument that Seligman’s testimony was unreliable.

Disposition

The court ruled as follows:

- Defendants’ motion to exclude Jeremy Clark’s testimony was DENIED, with the possible exception of Clark’s rebuttal opinion concerning Yadav, which would be addressed after further briefing. - Defendants’ motion to exclude Saifedean Ammous’s testimony was DENIED. - Plaintiff’s motion to exclude Alan Schwartz’s testimony was GRANTED. - Defendants’ motion to exclude Joel Seligman’s testimony was GRANTED.

Judge Phyllis J. Hamilton signed the order on October 24, 2024.