Alec Otto v. Nano f/k/a Raiblocks f/k/a Hieusys LLC

Background

Alec Otto brought a proposed class action against Nano f/k/a RaiBlocks f/k/a Hieusys, LLC; Colin LeMahieu; Mica Busch; Zack Shapiro; Troy Retzer; B.G. Services SRL f/k/a BitGrail SRL f/k/a Webcoin Solutions; and Francesco “The Bomber” Firano. The claims concerned alleged securities fraud and related conduct involving defendants’ promotion of and statements about NANO cryptocurrency tokens.

Otto had filed two motions seeking class certification. After the court granted the Nano Defendants’ motion to strike a report supporting the second class-certification motion, the court directed Otto to state whether he intended to proceed with or withdraw that motion. Otto initially said he would proceed, but later sought to withdraw the class-certification motion and voluntarily dismiss the action.

Withdrawal of Class-Certification Motion

Under Civil Local Rule 7-7(e), a motion may be withdrawn as of right only within the time allowed for filing and serving a reply. Otto filed his withdrawal more than two months after the reply had been filed, making the withdrawal untimely. The court nevertheless excused the late filing because the Nano Defendants did not oppose withdrawal. The court therefore accepted Otto’s withdrawal of the class-certification motion.

Voluntary Dismissal

Federal Rule of Civil Procedure 41(a)(2) allows a plaintiff to dismiss an action by court order on terms the court considers proper. A voluntary dismissal generally should be allowed unless the defendant shows legal prejudice, meaning harm to a legal interest, claim, or legal argument. Here, both sides agreed that the claims should be dismissed with prejudice, although they disagreed about whether the Nano Defendants should receive attorneys’ fees and costs.

The court found that dismissal with prejudice was warranted. However, the Nano Defendants requested attorneys’ fees as sanctions under Section 27(c) of the Securities Act of 1933. That provision requires the court, after final adjudication of a private federal securities action, to assess the parties’ compliance with the requirements of Rule 11, which governs factual and legal support for court filings. If the court finds noncompliance, it should award appropriate sanctions.

Disposition

The court ordered the Nano Defendants to file an opening brief addressing whether sanctions were appropriate, followed by Otto’s response and the Nano Defendants’ reply. The court anticipated resolving the sanctions issue on the written submissions.

The court accepted Otto’s withdrawal of the motion for class certification and tentatively granted the motion for voluntary dismissal with prejudice, pending resolution of the Section 27(c) issue. The opinion did not decide whether attorneys’ fees or other sanctions would be awarded.