In re Ripple Labs Inc. Litigation

Background

The court addressed a jointly filed letter brief concerning a discovery dispute. The defendants sought financial information about plaintiff Bradley Sostack’s trading in digital assets other than XRP, the digital asset at issue in the litigation.

Sostack had submitted a declaration supporting his motion for class certification. He stated that he did not buy XRP for personal use, but bought it expecting to profit by later selling it at a higher price. He attributed that expectation to Ripple’s promotional activity, including representations that financial-institution adoption would increase demand for XRP. He also stated that he expected Ripple to improve the XRP Ledger and obtain additional exchanges where XRP could be traded or sold.

Discovery Requests and Arguments

The defendants requested three forms of relief:

The defendants argued that Sostack’s non-XRP trading could show that he was a broad digital-asset speculator, rather than someone who bought XRP based on an expectation that Ripple’s efforts would increase its value. They contended that the information was relevant both to the legal test for determining whether XRP transactions involved an “investment contract” and to Sostack’s adequacy and typicality as a proposed class representative. Adequacy and typicality are requirements for serving as a class representative under Federal Rule of Civil Procedure 23.

Court’s Analysis

The court rejected the defendants’ argument that Sostack’s trading in other digital assets was relevant to whether XRP met the definition of an investment contract under the Supreme Court’s investment-contract test. The court found no clear connection between Sostack’s non-XRP trading and that legal question.

The court also rejected the argument that the information was relevant to Sostack’s adequacy or typicality as a class representative. The defendants already possessed detailed information about Sostack’s XRP transactions. The court reasoned that even extensive evidence of short-term or speculative trading in other digital assets would have negligible, if any, value in evaluating his suitability to represent the proposed class. Any possible value would also be cumulative of the XRP trading evidence already available.

The court emphasized Sostack’s privacy interests in his unrelated financial dealings. It stated that protective-order protections might address those interests if the discovery were relevant, but found no legitimate reason to intrude into financial activities unrelated to the case.

Ruling

Judge Robert M. Illman ruled that the defendants’ request to require Sostack to reappear for deposition questioning about non-XRP digital-asset trading was DENIED. The request to require the plaintiff to complete responses to Interrogatory Nos. 4 and 5 was also DENIED. The court SUSTAINED Sostack’s objections to the defendants’ third-party subpoenas seeking his trading records from third-party exchanges.