Shin v. ICON Foundation

Background

Mark Shin alleged that ICON Foundation interfered with his ownership and possession of ICX tokens, a cryptocurrency used on the ICON Network. According to the amended complaint, a software update allowed Shin to receive approximately 14 million ICX tokens by repeatedly using a redelegation process. Shin alleged that he was the lawful owner of those tokens and that ICON later caused his ICX to be restricted, contacted the Kraken and Binance exchanges by calling him a “malicious attacker” and describing the tokens as “stolen,” and contributed to the freezing of his exchange accounts.

Shin asserted five causes of action: declaratory relief concerning his property rights, conversion, trespass to chattel, defamation, and prima facie tort. He stated that the property, conversion, and trespass claims were brought under California law and that the defamation and prima facie tort claims were brought under Colorado law. ICON moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. ICON also moved to strike the defamation claim under an anti-SLAPP statute, a law allowing early challenges to claims based on protected speech or petitioning activity.

Defamation

The court dismissed the defamation claim with leave to amend. It held that the amended complaint did not adequately allege that readers of ICON’s public post could identify Shin from the wallet address and other information. The court also found that the alleged statements to the exchanges were not pleaded specifically enough because Shin did not identify who made the statements or to whom, distinguishing between the two exchanges.

The court further concluded that the phrases “malicious attacker” and “stolen,” as pleaded, were opinions based on facts disclosed in ICON’s public post. The post described the software vulnerability, the unusual activity, the use of the “SetDelegate” function to generate ICX, the account freezes, and the subsequent network update. Because Shin did not dispute the underlying facts described in the post, the court held that the challenged characterizations could not support the defamation claim as currently pleaded. The court did not reach the merits of ICON’s motion to strike because it was allowing amendment. It denied that motion and ICON’s fee request without prejudice, and stated that ICON could renew the motion in response to an amended complaint.

Conversion

The court dismissed the conversion claim with leave to amend. Conversion is the wrongful exercise of control over another person’s property. The court found that Shin plausibly alleged that ICON had de facto control over the network approval process, based on allegations about ICON’s voting power, its influence over other community representatives, the rapid approval of Revision 10, and public statements concerning responsibility for network problems.

The court found, however, that Shin had not clearly explained what Revision 10 did to his access to the ICX tokens or how the restriction amounted to ICON’s assumption of control over his property. The amended complaint contained conflicting allegations about whether Shin retained access to most of the 14 million tokens and whether Revision 10 restricted only those tokens or all of his ICX, including tokens purchased before the incident. The court allowed amendment to address those contradictions and explain the alleged restriction.

Trespass to Chattel

The court dismissed the trespass-to-chattel claim with leave to amend. Trespass to chattel is intentional, unauthorized interference with another person’s possession or use of personal property that causes harm. The court found that Shin plausibly alleged ICON’s de facto control over the network approval process but did not adequately explain how Revision 10 interfered with his use of the ICX tokens. The court also stated that, if Shin continued to rely on the frozen exchange accounts, he needed to explain how ICON interfered with his access to those accounts, particularly given ICON’s argument that it did not control them.

Declaratory Relief

The court granted ICON’s motion to dismiss the declaratory-relief claim, with leave to amend if Shin could allege that it was an appropriate, separate cause of action. Shin sought declarations that the ICX tokens issued on August 22, 2020, were his property and that he could exercise property rights in those and other tokens. The court held that this claim was needlessly duplicative because ownership was already an issue in the conversion and trespass-to-chattel claims.

Prima Facie Tort

The court granted ICON’s motion to dismiss the prima facie tort claim with prejudice. A claim dismissed with prejudice cannot be refiled in the same form. The court concluded that prima facie tort was not a legally recognized claim under either California or Colorado law on the authorities presented. It rejected Shin’s reliance on a section of the Restatement of Torts and on a case that did not actually decide whether Colorado recognized prima facie tort as a standalone claim.

Punitive Damages

The court granted ICON’s motion to dismiss Shin’s punitive-damages claim with leave to amend. Punitive damages require allegations of oppression, fraud, or malice. The court found that Shin’s allegations that ICON knowingly made false statements and intended to interfere with his property were conclusory. It also found that he had not identified an ICON officer, director, or managing agent whose conduct could support punitive damages against the corporation.

Disposition

Judge William H. Orrick granted ICON’s motion to dismiss with leave to amend, except that the fifth cause of action for prima facie tort was dismissed with prejudice. The court denied ICON’s motion to strike and its request for fees without prejudice. Shin was given 20 days from the order to amend.