Johnson v. Maker Ecosystem Growth Holdings, Inc.

Background

Peter Johnson sued Maker Ecosystem Growth Holdings, Inc. and Maker Ecosystem Growth Foundation, collectively called the Maker Defendants. He alleged that the Maker Defendants managed a cryptocurrency platform and represented that it had measures to prevent significant investor losses. Johnson alleged that he and other investors nevertheless lost all of the collateral they invested because of a vulnerability in the platform. He asserted claims for negligence, intentional misrepresentation, and negligent misrepresentation on behalf of himself and a proposed class.

The Maker Defendants moved to compel arbitration based on Terms of Service that Johnson accepted when he signed up for their platform in 2018. Those terms required arbitration of disputes arising under the agreement under the American Arbitration Association’s rules. In an order dated September 25, 2020, the court granted the motion to compel arbitration and stayed the case, finding that the agreement and incorporated arbitration rules delegated questions about whether claims were arbitrable to the arbitrator.

Motion for Immediate Appeal

Johnson asked the court to certify the arbitration order for interlocutory review, meaning an appeal before the case was finished. Under 28 U.S.C. § 1292(b), certification requires a controlling question of law, substantial disagreement about that legal question, and a conclusion that immediate review could materially advance the end of the litigation. The party seeking certification bears the burden of showing all three requirements.

2019 Terms of Service

Johnson proposed asking whether the court erred by deciding the arbitration motion without requiring production and review of the 2019 Terms of Service. He argued that the 2019 terms, rather than the 2018 terms, governed the product and conduct involved in the lawsuit.

The court held that this proposed issue was not a qualifying question of law. It concerned which facts the court considered and whether the court applied settled law to those facts. The court therefore found that Johnson had not shown certification was appropriate on this issue.

Johnson’s Sophistication

Johnson also sought review of whether the court erred by finding him sophisticated based solely on his cryptocurrency and technical knowledge. He pointed to a disagreement among district courts within the Ninth Circuit about whether an arbitration clause incorporating the American Arbitration Association’s rules binds an unsophisticated party at the beginning of a dispute.

The court held that the proposed question about Johnson’s sophistication was a factual question, not a question of law suitable for certification. The court also explained that it had not found Johnson sophisticated solely because of his cryptocurrency knowledge. Instead, it had considered that knowledge along with other undisputed facts as showing general learning and experience inconsistent with Johnson’s description of himself as unsophisticated.

The court further stated that it had not needed to decide the legal question involving incorporation of the arbitration rules. In the earlier arbitration ruling, the court had assumed, for purposes of deciding the motion to compel arbitration, that Johnson’s sophistication was relevant to whether the incorporated arbitration clause was enforceable.

Disposition

The court denied Johnson’s Motion for Permission to Seek Interlocutory Review. It did not address the Maker Defendants’ additional argument that the motion was untimely.