Opinion
20-CV-2806 (GBD) (RWL)
10-21-2021
CHASE WILLIAMS, On Behalf of Himself and All Others Similarly Situated, Plaintiff, v. KUCOIN, MICHAEL GAN, JOHNNY LYU, And ERIC DON, Defendants.
REPORT AND RECOMMENDATION TO HON. GEORGE B. DANIELS: CLASS CERTIFICATION
ROBERT W. LEHRBURGER, United States Magistrate Judge.
Plaintiff Chase Williams (“Plaintiff” or “Williams”) purchased TOMO-brand digital tokens on Defendant KuCoin, an online crypto-asset exchange. He brings this putative class action on behalf of purchasers of TOMO tokens as well as those who purchased nine other brands of digital tokens on the KuCoin exchange. Williams asserts claims for violations of federal and state securities laws, claiming that KuCoin, and its principals, transacted in unregistered securities and failed to register KuCoin as a securities exchange and as a securities brokerdealer. By the instant motion, Williams seeks certification of the class, his appointment as class representative, and appointment of class counsel pursuant to Rule 23 of the Federal Rules of Civil Procedure. For the reasons set forth below, I recommend that Plaintiff's motion be GRANTED IN PART for a narrowed class that does not include purchasers of tokens that Plaintiff did not purchase. 1
The facts are derived from the Amended Complaint as well as the declarations and exhibits submitted by Plaintiff. Defendants have not submitted any opposition; indeed, they have not appeared at all and are in default. Plaintiff's materials filed in support of the instant motion include, inter alia, a Memorandum in Support (Dkt. 104); the Declaration Of Kyle L. Roche filed on July 2, 2021 (Dkt. 105, “Second Roche Decl.”); and the Certification Of Chase Williams filed on July 2, 2021 (“Second Williams Cert.”), attached as Exhibit 1 to the Roche Decl. The Court also draws upon materials filed earlier in the case, including the Declaration Of Kyle L. Roche filed on June 8, 2020 (Dkt. 22, “First Roche Decl.”); and the Certification In Support Of Lead Plaintiff Motion For Securities Class Action filed on June 8, 2020 (Dkt. 22-1, “First Williams Cert.”). Additionally, in response to the Court's request for supplemental information, Plaintiff filed the Declaration of Dr. Matthew J. Edman on September 30, 2021 (Dkt. 115, “Edman Decl.”).
A. The Parties
Defendant KuCoin claims to be one of the world's most popular crypto-asset exchanges, enabling trades in digital assets by providing a marketplace and facilities for bringing together buyers and sellers. (Am. Compl. ¶ 17.) KuCoin charges a fee for each transaction it facilitates. (Am. Compl. ¶ 17.) The digital assets sold by KuCoin include, among others, ten digital tokens known as EOS, SNT, QSP, KNC, TRX, OMG, LEND, ELF, CVC, and TOMO (collectively, the “Tokens”). (Am. Compl. ¶¶ 1, 81.) The issuers of the Tokens did not register them as securities with the Securities and Exchange Commission (“SEC”), and KuCoin did not register itself as either an exchange or broker-dealer with the SEC. (Am. Comp. ¶¶ 1, 58.)
Where a citation appears after more than one sentence, it supports the facts set forth in each of the sentences following the previous citation.
Defendant Michael Gan is a co-founder of KuCoin and Chairman of KuGroup, a parent entity of KuCoin. Defendant Johnny Lyu is a co-founder of KuCoin and Chief Executive Officer of KuCoin Global, one of the three entities that make up KuGroup. Defendant Eric Don is a cofounder and President of KuCoin. (Am. Compl. ¶¶ 18-20.) KuCoin has solicited the buying and 2 selling of digital tokens since at least September 15, 2017. (Am. Compl. ¶¶ 1, 17.)
Plaintiff Williams purchased and sold TOMO Tokens through KuCoin. More particularly, he made several purchases of TOMO Tokens on November 4, 2018 and made several sale transactions of those Tokens on November 21, 2018. (First Williams Cert. ¶ 4 and Ex. A.) Williams incurred an estimated overall loss from those transactions in the amount of $4,183.51. (First Roche Decl. Ex. 4.)
B. The Tokens
Each of the Tokens uses the “ERC-20” protocol, which allows anyone to create their own token on the Ethereum blockchain, creating whatever rules they want governing how these new tokens are made and released. The Tokens differ, however, from crypto-currencies like Bitcoin and Ether that operate on their own blockchains and which restrict the number of tokens available at any time. (Am. Compl. ¶¶ 44-45.)
Each of the Tokens was offered to the public through “initial coin offerings” (“ICOs”). (Am. Compl. ¶¶ 49, 125, 142, 156, 173, 189, 202, 217, 232, 247, 264.) After each ICO, KuCoin listed the respective Token on its online exchange. (Am. Compl. ¶¶ 81, 125, 144, 158, 175, 191, 206, 219, 236, 251, 265.) As a result, the Tokens' issuers obtained access to retail investors to whom they could market the Tokens. (Am. Compl. ¶ 71.) Instead of providing detailed offering documents pursuant to the securities laws, however, the Tokens' issuers released “whitepapers” describing the Tokens and terms of their respective ICOs and advertised the sale of the Tokens through the ICOs. (Am. Compl. ¶¶ 7, 52-53, 128, 147, 161, 179, 192, 204, 222, 234, 250, 266.) Williams alleges that the Token issuers, who are not defendants, and KuCoin failed to make the robust disclosures required of securities, misled investors to conclude that the Tokens were not securities, and deprived investors of information necessary to reliably assess the 3 representations made or the risks of their investments. (Am. Compl. ¶¶ 7, 11, 83.)
C. The SEC's Guidance On Digital Assets
On April 3, 2019, the SEC published its “Framework for ‘Investment Contract' Analysis of Digital Assets, ” in which it “provided a framework for analyzing whether a digital asset is an investment contract and whether offers and sales of a digital asset are securities transactions” (the “SEC Framework”). (Am. Compl. ¶ 99.) The SEC Framework is derived from the Supreme Court's “Howey test, ” which defines an “investment contract” under the securities law as a “contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” Securities and Exchange Commission v. W. J. Howey, Co., 328 U.S. 293, 298-99, 66 S.Ct. 1100, 1103 (1946).
See https://www.sec.gov/news/public-statement/statement-framework-investment-contract-analysis-digital-assets, April 3, 2019.
The SEC Framework sets forth four prongs that are considered in determining whether a digital asset is a security. First, a party must make an investment of money or other valuable consideration. According to the SEC, the first prong is typically satisfied in an offer and sale of a digital asset. (Am. Compl. ¶¶ 101-02.) Second, the investment must be in a “common enterprise, ” which also typically exists in the offer and sale of a digital asset “because the fortunes of digital asset purchasers have been linked to each other or to the success of the promoter's efforts.” (Am. Compl. ¶¶ 101, 104.) Third, investors must have a “reasonable expectation of profit.” (Am. Compl. ¶¶ 101, 107.) Fourth, the profits are expected to be “derived from the efforts of others.” (Am. Compl. ¶¶ 101, 114.) As alleged by Williams, “the Framework identifies a series of factually intense questions underscoring ... the challenges a layperson 4 would face in analyzing whether a digital asset constitutes a security.” (Am. Compl. ¶ 109.) Indeed, the Amended Complaint's description and listing of the various characteristics to be assessed spans more than seven pages of the Amended Complaint. (Am. Compl. ¶¶ 109, 114, 118, 119.)
Undertaking a separate analysis of each Token pursuant to the SEC Framework, Williams alleges that all of the Tokens were securities at the time they issued. (Am. Compl. ¶¶ 125-276.)
D. Plaintiff's Claims
The Amended Complaint sets forth 154 causes of action. The first five causes of action allege violations of the federal securities laws. Claims one through three are directed to KuCoin and allege offer and sale of unregistered securities in violation of Section 5 of the Securities Act of 1993, 15 U.S.C. § 77e(a) and (c) (First Cause of Action); operation as an unregistered exchange in violation of Section 5 of the Securities Exchange Act of 1934, 15 U.S.C. § 78e (Second Cause of Action); and operation as an unregistered broker and dealer in violation of Section 15(a)(1) of the Exchange Act, 15 U.S.C. §78o(a)(1) (Third Cause of Action). The two additional federal causes of action are directed to the individual Defendants, Gan, Lyu, and Don, and allege that they are liable as control persons for KuCoin's violations of the Exchange Act (Fourth Cause of Action) and Securities Act (Fifth Cause of Action). The remaining 149 5 cause of action assert violations of the analogous security laws of 49 states, the District of Columbia, and Puerto Rico.
The Securities Act provides a private right of action to recover damages for persons who purchased unregistered securities. See 15 U.S.C. § 77l(a)(1).
The Exchange Act renders void contracts for listing and purchase of securities by an unregistered exchange. See 15 U.S.C. § 78cc. Williams and the putative class assert a private right of action under this provision to void their purchase agreements with KuCoin and recover rescissory damages.
The remedy for operating as an unlicensed broker and dealer is the same for that operating as an unlicensed exchange - voiding of contracts. See 15 U.S.C. § 78cc.
The only state whose law is not included is New York, which, according to Plaintiff's counsel, does not provide an analogous private right of action.
Williams alleges that Defendants are liable for damages to him and the putative class, all of whom purchased at least one of the ten Tokens on the KuCoin exchange. (Am. Compl. ¶¶ 277-79.) Williams demands rescission and seeks to recover the consideration paid for the Tokens, together with interest, and attorneys' fees. (Am. Compl. ¶¶ 1, 14, 277, 279.) Williams estimates that there are at least 1, 694 persons in the United States who currently hold at least one of the Tokens purchased on KuCoin, but only 26 of whom purchased TOMO Tokens. (First Roche Decl. ¶ 7.)
Procedural History
Williams filed his original complaint on April 3, 2020. (Dkt. 1.) On May 5, 2020, Williams served the summons and complaint on KuCoin; Williams filed proof of service on June 15, 2020. (Dkt. 26.) Pursuant to the Court's order dated August 13, 2020 (Dkt. 33), Williams served Defendants Gan, Lyu, and Don at three email addresses associated with Defendant KuCoin and at email addresses associated with the individual defendants, as well as by mailing the summons and Complaint to the same address in Singapore where service was effectuated upon KuCoin. Williams filed proof of service on August19, 2020. (Dkt. 34.)
On October 7, 2020, pursuant to the Private Securities Litigation Reform Act of 1995, 15 U.S.C. §§ 77z-1(a)(3)(B)(i), 78u-4(a)(3)(B)(i), the Court issued an order appointing Williams as Lead Plaintiff and appointing Roche Freedman LLP and Selendy & Gay, PLLC as Co-Lead 6 Counsel. (Dkt. 43.) That same day, Williams filed an Amended Complaint. (Dkt. 44.) Williams served each of the Defendants with the Amended Complaint on October 8, 2020 and filed proof of service on the same day. (Dkt. 45.) Williams has since been diligently pursuing discovery, as reflected in regular status updates to the Court, including from third-party Token issuers. (See Dkt. 84, 88, 99, 101.)
Defendants never answered or otherwise moved with respect to the Complaint or Amended Complaint. At Williams' request, on October 23, 2020, the Clerk of Court issued a Certificate of Default pursuant to Federal Rule of Civil Procedure 55(a) against eachDefendant. (Dkt. 58-61.) Williams advises that if the instant motion is granted, he anticipates filing a motion for default judgment on behalf of the class against each of the Defendants.
The Proposed Class
Williams requests certification of the following class:
All persons who purchased on the KuCoin exchange any of the Tokens - EOS, SNT, QSP, KNC, TRX, OMG, LEND, ELF, CVC, and TOMO - each of which was listed for sale on a domestic U.S. exchange, or who otherwise purchased on the KuCoin exchange any of the Tokens in a domestic U.S. transaction, between September 15, 2017 and July 2, 2021 and were injured thereby.
Williams initially proposed a class period of September 15, 2017 through “the present” but later specified the end-date as being July 2, 2021, when Williams filed his motion for class certification. (See Dkt. 116.)
Class Action Requirements
To obtain class certification, a movant must establish several requirements by a preponderance of the evidence. In re U.S. Foodservice Inc. Pricing Litigation, 729 F.3d 108, 117 (2d Cir. 2013). Courts must undertake “a rigorous analysis” and resolve any factual disputes relevant to certification. In re American International Group Securities Litigation, 7 689 F.3d 229, 238 (2d Cir.2012). “The Rule 23 inquiry may overlap with that of the merits, although courts are not permitted to engage in ‘free-ranging merits inquiries at the certification stage.'” Enea v. Bloomberg, L.P., No. 12-CV-4656, 2014 WL 1044027, at *2 (S.D.N.Y. March 17, 2014) (Daniels, J.) (citing Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351, 131 S.Ct. 2541, 2551 (2011), and quoting Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, 568 U.S. 455, 466, 133 S.Ct. 1184, 1194-95 (2013)).
A class will be certified “only if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a). These four elements are known in brief as numerosity, commonality, typicality, and adequacy of representation. Central States Southeast And Southwest Areas Health And Welfare Fund v. Merck-Medco Managed Care, L.L.C., 504 F.3d 229, 244 (2d Cir. 2007). Additionally, there is an implied requirement of “ascertainability, ” which, in the Second Circuit, “requires only that a class be defined using objective criteria that establish a membership with definite boundaries.” In re Petrobras Securities, 862 F.3d 250, 264 (2d Cir. 2017), cert. denied, 140 S.Ct. 338 (2019).
If the requirements of Rule 23(a) are met, “the district court must also find that the action can be maintained under Rule 23(b)(1), (2), or (3).” In re Literary Works In Electronic Databases Copyright Litigation, 654 F.3d 242, 249 (2d Cir. 2011). A plaintiff need establish only one basis for certification under Rule 23(b). See Waggoner v. Barclays PLC, 875 F.3d 79, 93 (2d Cir. 2017). Here, Plaintiff seeks certification of the class pursuant to Rule 23(b)(3), which applies when the court finds “that the questions of law or fact common to class members predominate 8 over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 809, 131 S.Ct. 2179, 2184 (2011) (quoting Rule 23(b)(1)(B)).
“‘The Second Circuit has emphasized that Rule 23 should be given liberal rather than restrictive construction' and has demonstrated a ‘general preference ... for granting rather than denying class certification.'” Enea, 2014 WL 1044027 at *2 (quoting Gortat v. Capala Bros., Inc., 257 F.R.D. 353, 361 (E.D.N.Y. 2009). District courts customarily retain “broad discretion” in the context of class certification. Parker v. Time Warner Entertainment Co., 331 F.3d 13, 28 (2d Cir.2003) (collecting cases).
A defaulting defendant is deemed to have admitted all well-pleaded factual allegations set forth in the complaint. Fed.R.Civ.P. 8(b)(6); City Of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011) (“It is an ‘ancient common law axiom' that a defendant who defaults thereby admits all ‘well-pleaded' factual allegations contained in the complaint.”) (quoting Vermont Teddy Bear Co., Inc. v. 1-800 Beargram Co., 373 F.3d 241, 246 (2d Cir. 2004)). That said, “a party in default does not admit conclusions of law.” Zhen Ming Chen v. Y Cafe Ave B Inc., No. 18-CV-4193, 2019 WL 2324567, at *1 (S.D.N.Y. May 30, 2019).
Similarly, a defaulting defendant does not admit conclusions as to class certification; rather, the Court must independently assess whether the requirements of Rule 23 have been met. Partington v. American International. Specialty Lines Insurance Co., 443 F.3d 334, 341 (4th Cir. 2006) (“a default judgment has the effect of deeming all factual allegations in the complaint admitted, it does not also have the effect of ‘admitting' the independent legal question of class certification); Davis v. Hutchins, 321 F.3d 641, 649 (7th Cir. 2003) (“Rule 23(c) imposes 9 an independent duty on the district court to determine by order that the requirements of Rule 23(a) are met regardless of the defendant's admissions.”); Bruce E. Katz, M.D., P.C. v. Professional Billing Collections, LLC, No. 20-CV-3043, 2021 WL 2418387, at *2 (S.D.N.Y. June 14, 2021) (following Davis and stating: “As a threshold matter, the Clerk's entry of a certificate of default against Defendant does not affect the Court's analysis. The Court has an independent duty to determine whether the requirements of Rule 23 are met regardless of Defendant's admissions.”); Mihelis v. Network Commercial Service, Inc., No. 11-CV-2215, 2014 WL 4828875, at *4 (E.D.N.Y. Aug. 8, 2014) (following Davis).
To be clear, default judgment has not been entered in this case. Rather, Defendants have defaulted, and Plaintiff has obtained certificates of default from the Clerk of Court, which is a preliminary step to obtaining a default judgment. Acticon AG v. China North East Petroleum Holdings Limited, 687 Fed.Appx. 10, 12 (2d Cir. 2017) (Plaintiff “had requested and obtained a certificate of default from the clerk of the court, but that was only the first step on the way to obtaining a default judgment”). Nonetheless, for purposes of this motion, the Court accepts all well-pleaded allegations as true.
Discussion
Williams has established the basis for class certification but as to a narrowed class that includes only purchasers of TOMO Tokens and not purchasers of the other nine Tokens in the proposed class. The discussion below first explains why Williams lacks standing to bring claims on behalf of purchasers of Tokens that Williams did not purchase. The Court then discusses why the putative class, narrowed to purchasers of TOMO Tokens, satisfies the requirements for class certification.
I. Plaintiff Lacks Class Standing With Respect To Tokens He Did Not Purchase
The Court must first consider the threshold issue of whether Williams has standing to bring the claims he proposes. In class actions, a court examines standing from both a 10 constitutional perspective and a class action perspective.
The standing requirement is grounded in Article III of the United States Constitution, which “limits federal courts' jurisdiction to ‘cases' and ‘controversies.'” Retirement Board Of The Policemen's Annuity And Benefit Fund Of The City Of Chicago, 775 F.3d 154, 159 (2d Cir. 2014) (citing U.S. Const. art. III, § 2). To establish standing, a federal court plaintiff must demonstrate a “personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342, 126 S.Ct. 1854, 1861 (2006). The standing requirement ensures, inter alia, “that a plaintiff has a sufficiently personal stake in the outcome of the suit so that the parties are adverse.” Retirement Board, 775 F.3d at 159-60 (quoting W.R. Huff Asset Management Co. v. Deloitte & Touche LLP, 549 F.3d 100, 107 (2d Cir. 2008)).
In a putative class action like this one, “a plaintiff has class standing if he plausibly alleges (1) that he personally has suffered some actual injury as a result of the putatively illegal conduct of the defendant, and (2) that such conduct implicates the same set of concerns as the conduct alleged to have caused injury to other members of the putative class by the same defendants.” Retirement Board, 775 F.3d at 161 (quoting NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 162 (2d Cir. 2012)). When this two-part test is satisfied, “the named plaintiff's litigation incentives are sufficiently aligned with those of the absent class members that the named plaintiff may properly assert claims on their behalf.” Id. The class standing requirement “derives from constitutional standing principles” and “is thus distinct from the criteria that govern whether a named plaintiff is an adequate class representative under Rule 23(a).” Id. (citing NECA, 693 F.3d at 158 n.9).
Williams easily satisfies the constitutional standing requirement for claims he asserts 11 with respect to TOMO Tokens: Williams incurred a loss that he alleges was caused by his purchase and sale of TOMO Tokens through KuCoin. The relief he requests, rescission and compensation, would directly redress the injury claimed. For similar reasons, Williams readily meets the first prong of the class-standing requirement. The more difficult question is whether the second prong is satisfied; that is, whether KuCoin's injury of Williams through purchase and sale of unregistered TOMO Tokens “implicates the same concerns” as KuCoin's alleged harm to class members who purchased unregistered Tokens other than TOMO Tokens.
To answer that question, it is helpful to consider the Second Circuit's decisions in NECA, Retirement Board, and other cases from this District addressing class standing in analogous circumstances. See, e.g., Merryman v. Citigroup, Inc., No. 15-CV-9185, 2018 WL 1621495, at * 6 (S.D.N.Y. March 22, 2018) (McMahon, C.J.) (“Resolution of the class standing issue in this case depends on whether this case is more similar to [NECA] or to ... [Retirement Board]”); Layden v. Bank of Tokyo-Mitsubishi UFJ, Ltd., No. 12-CV-3419, 2017 WL 1093288, at *2-3 (S.D.N.Y. March 10, 2017) (Daniels, J.) (determining class standing by assessing whether case was closer to NECA or Retirement Board); Fernandez v. UBS AG, 222 F.Supp.3d 358, 371-73 (S.D.N.Y. 2016) (analyzing class standing in context of comparing NECA and Retirement Board).
In NECA, the named plaintiff alleged injuries stemming from misrepresentations made in offering documents for various residential mortgage-backed securities (“RMBS”). The question was whether the named plaintiff could assert claims on behalf of investors of securities in which the plaintiff did not invest. The Second Circuit provided an answer that was not uniform and depended on the particular securities at issue. The court held that the named plaintiff had class standing for securities backed by the same loan originators who issued the loans backing the 12 securities in which plaintiff invested. NECA, 693 F.3d at 162-64. In contrast, the plaintiff did not have standing to assert claims with respect to securities backed by mortgages originated by lenders different than those backing plaintiff's securities. Id. at 163. The court reasoned that liability turned on whether loan originators violated their own mortgage guidelines. Accordingly, the question of whether one originator complied with its own guidelines “might well have had nothing to do with” whether another originator complied with its guidelines. Retirement Board, 775 F.3d at . at 162 (discussing NECA).
Two years later, in Retirement Board, the Second Circuit again confronted claims involving RMBS but in the context of plaintiffs' claims for breach of contract and fiduciary duty against the RMBS trustee. The plaintiffs invested in only 26 of 530 RMBS administered by the trustee but alleged class claims on behalf of investors in all 530 securities. A single lender had originated all loans backing each of the 530 securities, thus obviating the issue of different trusts backed by loans of different originators following different guidelines. The court nevertheless determined that the plaintiffs did not have class standing to advance claims regarding RMBS in which they had not invested. 775 F.3d at 162-63. The Second Circuit reasoned that the breach of contract and fiduciary duty claims being asserted were “very different” from the misrepresentation claims in NECA; “[i]n contrast to NECA, where the defendants' alleged Securities Act violations inhered in the same misstatements across multiple offerings, [the trustee]'s alleged misconduct [in Retirement Board] must be proved loan-by-loan and trust-by-trust.” Id. at 162 (emphasis in original).
Two district court cases decided after both NECA and Retirement Board illustrate the metes and bounds of class standing based on the teachings of the Second Circuit. In Merryman, Plaintiffs invested in American Depository Receipts (“ADRs”) and brought a putative 13 class action claiming that the defendant had breach its contractual obligations by using an improperly diminished exchange rate. Plaintiffs owned five ADRs but advanced claims on behalf of current and former holders of 35 ADRs sponsored by the same defendant. The defendant argued that the plaintiffs had no standing to represent ADR holders who received cash distributions from ADRs that the plaintiff did not own. The court agreed. It found that the case was closer to Retirement Board than to NECA because rather than being able to “point to a single document containing a single set of misrepresentations applicable to all thirty-four ADRs, ” plaintiffs would need to introduce specifics about each of the ADRs into evidence “to satisfy their burden to prove that all members of the proposed class are eligible for relief.” 2018 WL 162495 at *10.
In Fernandez, investors in mutual funds related to Puerto Rico's debt crisis filed a putative class action asserting state law claims for breach of fiduciary duty and breach of contract. The defendants filed a motion to dismiss arguing, among other points, that the named plaintiffs lacked standing to bring claims regarding funds in which they did not invest. After reviewing both NECA and Retirement Board, the court denied the motion, finding that, as alleged, all funds at issue were structured the same way, held the same type of assets, and were governed by substantially similar agreements. The court concluded that because of those similarities, “if defendants' systematic conduct is tortious with respect to one fund, it is also tortious with respect to another fund, and does not depend on the individualized circumstances of each [f]und.” 222 F.Supp.3d at 373. (The court suggested, however, that the issue would be revisited at a later juncture in the context of a motion for class certification. Id.)
When viewed in the context of NECA, Retirement Board, and their progeny, the answer to the question whether Williams has class standing to advance claims on behalf of purchasers 14 of Tokens that he did not purchase becomes clear. He does not. To succeed on his claim for relief, Williams must demonstrate that the TOMO Tokens that he purchased and sold are securities. Doing so in turn depends on applying the “factually intense” inquiry of the SEC Framework that determines whether particular instruments are securities under the Supreme Court's Howey test. (Am. Compl. ¶ 109.)
Although the first two prongs of the four-prong test typically are satisfied when dealing with digital tokens, the third and fourth prongs are considerably more involved as demonstrated by the Amended Complaint's many-page recitation of the factual issues considered. (Am. Compl. ¶¶ 109, 114, 118, 119.) Yet establishing KuCoin's liability with respect to each Token at issue will require introduction of evidence corresponding to each prong for each Token. This case thus is similar to Retirement Board, where determination of liability required a “trust-by-trust” analysis, and to Merryman, which required proof with respect to each ADR. It is less like the portion of NECA, for which class standing was found, and more like that portion of NECA where class standing was absent for securities not purchased by the named plaintiffs and which did not have a common originator. Although all Tokens at issue here were listed on KuCoin, each Token was “originated” by a different issuer. And, unlike in Fernandez, a plaintiff's right to recover in this case turns on the “individualized circumstances of each” Token. 222 F.Supp.3d at 373.
Plaintiff may well be capable of litigating absent class member claims with respect to Tokens other than the TOMO Tokens he purchased, but “[t]he fact that it would be possible for a plaintiff to litigate a given claim plainly does not imply that she should be the one to litigate it.” Retirement Board, 775 F.3d at 163 (citing Raines v. Byrd, 521 U.S. 811, 818, 117 S.Ct. 2312, 2317 (1997)). As the Second Circuit observed in Retirement Board, “the core question is 15 whether a plaintiff who has a personal stake in proving her own claims against the defendant has a sufficiently personal and concrete stake in proving other, related claims against the defendant.” Id. Williams most certainly has such a stake with respect to other purchasers of TOMO Tokens. He does not, however, with respect to Tokens that he did not purchase. Williams can obtain full recovery for his injury by demonstrating that TOMO Tokens are securities; he need not introduce evidence with respect to any other Tokens to establish that fact or any other material fact such as whether KuCoin was or was not a registered exchange or broker-dealer at the relevant time. Williams' incentives thus are not “sufficiently aligned” with those of absent class members who purchased the Tokens that he did not. See id. at 161; NECA, 693 F.3d at 162.
Williams contends that he has standing to represent the entire class with respect to all ten Tokens, pointing to the fact that the Tokens all are based on the same technological platform, ERC-20. He relies principally on NECA and contends that he has standing for all Tokens because the analysis for whether each qualifies as a security turns on substantially similar factors under the SEC Framework, and all Tokens were purchased and sold through the KuCoin exchange. (Pl. Mem. at 12-14.) That argument is too glib by half as it glosses over the separate analysis and proof that will be required to establish that each Token is a security. It also overlooks the Amended Complaint's assertions that the fact analysis required for each Token is an intensive one. Even though a similar analytical framework will apply to each Token, and even though the Tokens are all created from the same platform, distinct proof will be required for that analysis. That is starkly demonstrated by the Amended Complaint, the largest 16 section of which makes extensive allegations as to each Token's issuer, characteristics, sale, and marketing. (Am. Compl. ¶¶ 125-276.)
“Pl. Mem.” refers to “Plaintiff's Memorandum Of Law In Support Of His Motion For Class Certification, Appointment As Class Representative, And Appointment Of Class Counsel” (Dkt. 104).
A court from this District recently addressed the same class standing issue, with respect to several of the same Tokens at issue here, in another case filed by the same attorneys. In Re Bibox Group Holdings Limited Securities Litigation, No. 20-CV-2807, 2021 WL 1518328 (S.D.N.Y. April 16, 2021), reconsideration denied in part, 2021 WL 2188177 (S.D.N.Y. May 28, 2021). In BiBox, an individually named plaintiff brought a putative class action against a digital token exchange and its principals, asserting securities law violations under federal and state laws with respect to six digital tokens, five of which also underlie the instant case (i.e., EOS, TRX, OMG, LEND, and ELF). The named plaintiff purchased and sold only one of the six tokens at issue.
The crypto-exchange defendants, unrelated to the defendants here, appeared and moved to dismiss, in part based on the plaintiff's lack of class standing with respect to the Tokens he did not purchase or sell. Judge Cote granted the motion, holding that the plaintiff lacked standing to bring claims on behalf of purchasers of tokens that he did not purchase. 2021 WL 2188177 at *6-8. Judge Cote reasoned that NECA did not support class standing because “[o]ther than being offered on the same exchange and sharing an underlying application standard, there is no factual or legal relationship between the six tokens, ” and determining whether each met the “fact intensive” Howey test under the SEC Framework required “token-by-token proof.” Id. at *6, 8. The fact that each of the tokens shared the ERC- 17 20 technology standards did not detract from the distinctly separate inquiry required for each token. In words no less applicable here, Judge Cote commented:
In Bibox, the Court also dismissed the named plaintiff's claim based on statute of limitations grounds. Had Defendants appeared here, they could have raised the same defense. Statute of limitations, however, is an affirmative defense, and because Defendants have defaulted, they have waived the defense. See, e.g., Conner v. Kira International, Inc., No. 13-CV-417, 2015 WL 4656530, at *6 n.7 (E.D.N.Y. July 14, 2015) (“Defendants waived the statute-of-limitations defense by failing to respond to Plaintiffs' complaint”), Koch v. Rodenstock, No. 06-CV-6586, 2012 WL 5844187, at *3 n.2 (S.D.N.Y. May 9, 2012), R. & R. adopted, 2012 WL 5845455 (S.D.N.Y. Nov. 19, 2012) (declining to consider statute of limitations defense because defendant defaulted); see generally Travellers International A.G. v. Trans World Airlines, Inc., 41 F.3d 1570, 1580 (2d Cir. 1994) (“The general rule in federal courts is that a failure to plead an affirmative defense results in a waiver.”).
None of the five tokens [that plaintiff did not purchase] was developed or issued by the defendants; each of the tokens was developed and issued by a separate entity. Each has its own set of characteristics and advertising history. ... These differences, among others, indicate that claims regarding each of the tokens must be proven in a different way, which forecloses a conclusion that claims regarding each of the tokens implicate the same set of concerns.Id. at *6.
Plaintiff's brief mentions BiBox in a footnote and contends that it “neither controls nor counsels against class standing here.” (Pl. Mem. at 20 n.3.) The Court agrees that as the decision of a district court, BiBox is not controlling. But it is persuasive and fully consistent with this Court's analysis set forth above and is not distinguishable in any material way. The Court therefore gave Plaintiff a further opportunity to distinguish this case by submitting the declaration of an expert to opine about similarities and differences between the Tokens and the similarities or differences in proof relevant to determining if they are securities. (Dkt. 109.) In response, Plaintiff submitted the declaration of Dr. Matthew J. Edman who is experienced in cyber security, blockchain, and crypto-assets. Dr. Edman's declaration, however, does not advance the ball for Plaintiff. To the contrary, it confirms that the ERC-20 platform enables issuers to fashion tokens each “with its own set of rules and features” and customized functionality. (Edman Decl. ¶¶ 20, 21; see also ¶ 29 (“each Token is fundamentally a function 18 of the direct action of their issuers and their issuers' managerial decisions, including their decisions to issue, control, or revoke new tokens”)).
Dr. Edman offers two analogies, both of which countenance against class standing with respect to Tokens that Williams did not purchase. First, Dr. Edman analogizes the issuance of ERC-20 tokens on an exchange like KuCoin to “issuance and sale of stock on an exchange.” (Edman Decl. ¶ 32.) Using that same analogy, however, “no one would suggest that the purchaser of one security on an exchange could seek damages for a class of purchasers of other securities from different issuers simply because they were traded on the same exchange, and this would hold true even if those securities shared some structural features.” BiBox, 2021 WL 1518328 at *6. Second, Dr. Edman asserts that “KuCoin's efforts in selling each of the unregistered tokens is comparable to an unlicensed vendor selling multiple types of unlicensed goods, say counterfeit purses, scarves, and shoes.” (Dkt. Edman Decl. ¶ 33.) That analogy is no better. A plaintiff in that scenario might have class standing with respect products she purchased, but that alone would not endow her with class standing for products she did not purchase. See DiMuro v. Clinique Laboratories, LLC, 572 Fed.Appx. 27, 29 (2014) (although plaintiffs brought putative class action alleging consumer fraud with respect to seven products from same manufacturer, plaintiffs did not have class standing with respect to the four products they did not purchase or use because each of the products had different ingredients and different advertising claims).
Finally, the cases that Williams cites in support of his having class standing for Tokens he did not purchase are distinguishable as not implicating the type of token-by-token analysis required here. See, e.g., Dennis v. JPMorgan Chase & Co., 343 F.Supp.3d 122, 159-61 (S.D.N.Y. 2018) (plaintiffs had class standing to assert federal antitrust claims with respect to derivatives they did not purchase because the same allegedly manipulated benchmark interest rate underlay each of the derivatives; differences among the derivatives were relevant only to damages; and plaintiffs did not have class standing for state law claims because liability turned on each plaintiff's relationship with a given defendant); Moreno v. Deutsche Bank Americas Holding Corp., No. 15-CV-9936, 2017 WL 3868803, at *10 (S.D.N.Y. Sept. 5, 2017) (plaintiffs had class standing to bring ERISA claims with respect to funds in which they did not invest because “the alleged harms [of paying excessive fees] are premised on the process Defendants used to manage the Plan” as a whole thus entailing similar inquiries and proof and implicating 19 same set of concerns); Leber v. Citigroup 401(k) Plan Investment Committee, 323 F.R.D. 145, 157 (S.D.N.Y. 2017) (plaintiff had class standing to bring ERISA claims with respect to funds he did not purchase because the misconduct alleged “was uniform and not dependent on the idiosyncratic characteristics of any proprietary funds” thus obviating any need for “fund-by-fund analysis”).
In sum, Plaintiff has standing to bring a putative class action on behalf of purchasers of TOMO Tokens but not purchasers of other Tokens. The Court now turns to analyzing whether Plaintiff has satisfied the requirements to bring a federal class action pursuant to Rule 23 on behalf of the narrowed class.
II. The TOMO Token Class Satisfies The Requirements Of Rule 23(a)
The first four class certification requirements are numerosity, commonality, typicality, and adequacy of representation. Fed.R.Civ.P. 23(a)(1)-(4). These elements are satisfied for the narrowed class.
A. Numerosity
To obtain certification, the proposed class must be “so numerous that joinder of all members is impracticable.” Fed.R.Civ.P. 23(a)(1). “Impracticable does not mean impossible, ” and “[c]ourts have not required evidence of exact class size or identity of class members.” Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir. 1993); see also In re Independent Energy Holdings PLC Securities Litigation, 210 F.R.D. 476, 479 (S.D.N.Y. 2002) (“Impracticability does not mean impossibility of joinder, but refers to the difficulty or inconvenience of joinder”).
Courts in the Second Circuit presume numerosity when the proposed class is at least 40 members. Consolidated Rail Corp. v. Town of Hyde Park, 47 F.3d 473, 483 (2d Cir. 1994); Enea, 2014 WL 1044027 at *3. “Classes that encompass ‘fewer than 20 members will likely 20 not be certified absent other indications of impracticability of joinder,' while prospective classes of twenty to forty members fall into a ‘gray area.'” Jianmin Jin v. Shanghai Original, Inc., No. 16-CV-5633, 2018 WL 1597389, at *11 (E.D.N.Y. April 2, 2018) (quoting 1 Newberg On Class Actions § 3:12 (5th ed. 2011)). “[P]articularly in cases falling into the gray area between 21 and 40 class members, courts must consider factors other than class size.” Ansari v. New York University, 179 F.R.D. 112, 114 (S.D.N.Y. 1998).
Relevant considerations as to the practicability of joinder include: “(1) the judicial economy that will arise from avoiding multiple actions; (2) the geographic dispersion of members of the proposed class; (3) the financial resources of those members; (4) the ability of the members to file individual suits; and (5) requests for prospective relief that may have an effect on future class members.” Id. at 114-15 (citing Robidoux, 987 F.2d at 936); accord Balverde v. Lunella Ristorante, Inc., No. 15-cv-5518, 2017 WL 1954934, at *5 (S.D.N.Y. May 10, 2017) (relevant facts include “judicial economy arising from the avoidance of a multiplicity of actions, ... financial resources of class members, [and] the ability of claimants to institute individual suits” (quoting (Robidoux, 987 F.2d at 936)).
If Williams had class standing on behalf of purchasers of all ten Tokens, the numerosity requirement would be easily satisfied. According to Plaintiff's analysis and calculations, there are at least 1, 694 individuals who purchased any one of the ten Tokens. (Second Roche Decl. ¶ 7.) But reduced to purchasers of TOMO Tokens, the putative class size is only 26 individuals. (Id.) The likely number of potential class members thus falls into the “gray area, ” where consideration of practicability factors are particularly salient.
Consideration of those factors leads the Court to the conclusion that the numerosity requirement is satisfied in this case. Judicial economy will be served by proceeding in one 21 action rather than 26 individual actions, and there is no reason to believe that the TOMO Token purchasers are geographically concentrated in a manner that would aid joinder to alleviate that concern. See, e.g., In re Beacon Associates Litigation, No. 09-CV-777, 2012 WL 1569827, at *4-5 (S.D.N.Y. May 3, 2012) (numerosity satisfied by 29 ERISA plans due in part to geographic dispersion of class members across six counties). The individual amount at issue (less than $5,000 assuming that Williams is representative of losses incurred by others) is relatively small compared to the costs of litigating a complex matter of this nature, and, absent recovery of attorneys' fees, pursuing the case on an individual basis would not make economic sense. See, e.g., Odom v. Hazen Transport, Inc., 275 F.R.D. 400, 407 (W.D.N.Y. 2011) (numerosity satisfied for putative class of 16 truck drivers suing employer for underpayment of wages because total funds amounted to $118,000 thus resulting in relatively small individual recoveries). Accordingly, despite the relatively modest size of the narrowed class, the Court finds that it satisfies the numerosity requirement.
B. Commonality
For the second requirement under Rule 23(a), a plaintiff must demonstrate that “there are questions of law or fact common to the class.” Fed.R.Civ.P. 23(a)(2). Commonality generally is considered a “low hurdle.” In re JP Morgan Chase & Co. Securities Litigation, No. 12-CV-3852, 2015 WL 10433433, at *3 (S.D.N.Y. Sept. 29, 2015) (Daniels, J.) (internal quotation marks and citations omitted). “[C]ommonality has never been understood to require that all issues must be identical as to each member, but rather [to] require[ ] that plaintiffs identify some unifying thread among the members' claims that warrant[s] class treatment.” Meyer v. USTA, 297 F.R.D. 75, 83 (S.D.N.Y. 2013) (internal quotation marks omitted) (modifications in original). “What matters to class certification” is whether a class action has “the capacity ... to 22 generate common answers apt to drive the resolution of the litigation.” Wal-Mart, 564 U.S. at 350, 131 S.Ct. at 2551 (internal quotation marks omitted).
Such is the case here. Williams alleges that purchasers of the Tokens were all injured due to Defendants' operation as an unregistered exchange and their marketing and sale of the unregistered securities. Indeed, there are several questions common to members of the class. These include, for example, (1) whether the TOMO Tokens are securities; (2) whether KuCoin operated as an unregistered exchange and as an unregistered broker-dealer, (3) whether KuCoin offered or sold the TOMO Tokens to members of the class, (4) whether members of the class suffered damages as a result; and (5) whether members of the class are entitled to void their purchase agreements with KuCoin and to recover monies they paid thereunder and/or losses they incurred.
Those common questions are more than sufficient to satisfy Rule 23(a)(2). See, e.g., Balestra v. Cloud With Me Ltd., No. 2:18-CV-00804, 2020 WL 4370392, at *3 (W.D. Pa. July 2, 2020) (certifying class in unregistered-token case and finding commonality satisfied by common questions of whether (i) defendants offered and sold unregistered securities in violation of the federal securities laws; (ii) plaintiffs and other class members will suffer irreparable harm if such securities laws violations are not remedied; and (iii) the class is entitled to compensatory, injunctive, and/or rescissory relief), R. & R. adopted, 2020 WL 4368153 (W.D. Pa. July 30, 2020); Davy v. Paragon Coin, Inc., No. 18-CV-671, 2020 WL 4460446, at *6 (N.D. Cal. June 24, 2020) (certifying class in unregistered-token case and finding commonality satisfied by common questions of whether the tokens qualify as securities and whether the defendants sold the tokens by false or misleading representations). 23
C. Typicality
The typicality analysis required to satisfy Rule 23(a)(3) is related to the commonality analysis. See Wal-Mart, 564 U.S. at 349 n.5, 131 S.Ct. at 2551 (the two analyses “tend to merge”). Typicality thus “requires that the disputed issues of law or fact occupy essentially the same degree of centrality to the named plaintiff's claim as to that of other members of the proposed class.” Mazzei v. Money Store, 829 F.3d 260, 272 (2d Cir. 2016) (internal quotation marks and citation omitted). “When it is alleged that the same unlawful conduct was directed at or affected both the named plaintiff and the class sought to be represented, the typicality requirement is usually met irrespective of minor variations in the fact patterns underlying individual claims.” Robidoux, 987 F.2d at 936-37. The purpose of typicality is to “ensure that named plaintiffs' interests are aligned with those of the putative class members whom they seek to represent.” Enea, 2014 WL 1044027 at *4; see also Davis v. City of New York, No. 10 Civ. 0699, 2013 WL 4712501, at *3 (S.D.N.Y. Aug. 29, 2013) (typicality requirement is meant to ensure that “representatives have the incentive to prove all the elements of the cause of action which would be presented by the individual members of the class were they initiating individualized actions” (internal quotation marks and citation omitted)).
Williams' claims are typical of the claims of the putative class of persons who purchased and sold TOMO Tokens during the relevant time period. Williams, like all members of the proposed Class, allegedly was injured by Defendants' wrongful sale of unregistered TOMO Tokens through KuCoin, acting as an unregistered exchange and unregistered broker-dealer. Williams, like every member of the proposed class, seeks to recover the consideration paid for the TOMO Tokens purchased on the KuCoin exchange or damages for the TOMO Tokens purchased on the KuCoin exchange that were previously sold. Williams' claims are therefore 24 typical of those of the class.
D. Adequacy Of Representation
Rule 23(a)(4) requires that the named plaintiff “fairly and adequately protect the class.” In assessing this requirement, courts make two principal inquiries: “whether (1) plaintiff's interests are antagonistic to the interest of other members of the class; and (2) plaintiff's attorneys are qualified, experienced and able to conduct the litigation.” In re Flag Telecom Holdings, Ltd. Securities Litigation, 574 F.3d 29, 35 (2d Cir. 2009); see also In re J.P. Morgan Chase & Co. Securities Litigation, No. 12-CV-03852, 2015 WL 10433433 at *3 (S.D.N.Y. Sept. 29, 2105) (Daniels, J.) (“the class representatives must not have interests conflicting with the class, and the lead plaintiffs' counsel must be qualified, experienced, and generally able to conduct the proposed litigation” (internal quotation marks and citation omitted)). Both requirements are fulfilled here.
1. Plaintiff's Interests Are Not Antagonistic To Other Members
“A finding that a proposed class representative satisfies the typicality inquiry constitutes ‘strong evidence that its interests are not antagonistic to those of the class; the same strategies that will vindicate plaintiff's claims will vindicate those of the class.'” Public Employees' Retirement System Of Mississippi v. Merrill Lynch & Co., 277 F.R.D. 97, 109 (S.D.N.Y. 2011) (alterations omitted) (quoting Damassia v. Duane Reade, Inc., 250 F.R.D. 152, 158 (S.D.N.Y. 2008)); see also Dura-Bilt v. Chase Manhattan Corp., 89 F.R.D. 87, 99 (S.D.N.Y. 1981) (“The typicality prerequisite overlaps with the common question requirement of Rule 23(a)(2) and the adequate representation requirement of Rule 23(a)(4)”). “To defeat class certification on adequacy grounds, any conflicts must be fundamental.” Enea, 2014 WL 1044027 at *5. A conflict is fundamental only when it “threaten[s] to become the focus of the litigation” and there 25 is a “danger that absent class members will suffer if their representative is preoccupied with defenses unique to her.” Baffa v. Donaldson, Lufkin & Jenrette Securities Corp., 222 F.3d 52, 59-60 (2d Cir. 2000) (internal quotation marks and citation omitted).
Williams so far has fairly and adequately protected the interests of the class and will continue to do so. Through his attorneys, Williams has filed a lengthy and intricate complaint and amended complaint and diligently pursued discovery, which has been challenging in that Defendants have not appeared, and much of the discovery has been sought from entities overseas. Williams has no apparent conflict with the class, let alone a fundamental conflict. He purchased TOMO Tokens that Defendants offered and promoted for sale on KuCoin. He lost money on those transactions and continues to hold tokens on which he has an unrealized loss. (See First Roche Decl. Ex. 4; Second Williams Cert.) He seeks both damages and rescission. His interests are thus aligned with other members of the proposed class who have the same claims and are seeking the same remedies based on purchases of the TOMO Tokens on the KuCoin exchange. See, e.g., Merrill Lynch, 277 F.R.D. at 110 (“The Court finds that Plaintiffs satisfy the adequacy requirement for largely the same reasons they satisfy the typicality requirement. Plaintiffs' interests are directly aligned with the interests of all the class members, who collectively purchased Certificates in each of the Offerings pursuant to the same material untrue statements and omissions in the Offering Documents.”).
2. Plaintiff's Attorneys Are Qualified, Experienced, And Able
Williams is represented by attorneys from two sophisticated and qualified law firms. Both Roche Freedman LLP and Selendy & Gay, PLLC have extensive experience in successfully prosecuting complex financial class actions and have ably prosecuted this action over the course of the past fifteen months. (See Second Roche Decl. Ex. B (Roche Freedman's Firm 26 Resume) and Ex. C (Selendy & Gay's Firm Resume).) Roche Freedman and Selendy & Gay also have dedicated significant resources to investigating, substantiating, and pursuing the class's claims. (See Dkt. 21 at 9-10.) Consistent with the Court's earlier approval of the firms as co-lead counsel in this case, the Court finds that the firms are eminently qualified, experienced, and able. (Dkt. 43.) See Merrill Lynch, 277 F.R.D. at 110 (holding that it was “beyond serious dispute that class counsel” were “qualified and capable of prosecuting” the action, given that they had done so ably for over two years and had prior experience prosecuting securities fraud class actions).
In light of the foregoing, Williams has met all requirements for class certification under Rule 23(a). The next inquiry is whether the class is ascertainable.
III. The Putative Class Is Ascertainable
The Second Circuit has explained the metes and bounds of the ascertainability requirement as follows:
The ascertainability requirement, as defined in this Circuit, asks district courts to consider whether a proposed class is defined using objective criteria that establish a membership with definite boundaries. This modest threshold requirement will only preclude certification if a proposed class definition is indeterminate in some fundamental way. If there is no focused target for litigation, the class itself cannot coalesce, rendering the class action an inappropriate mechanism for adjudicating any potential underlying claims. In other words, a class should not be maintained without a clear sense of who is suing about what.In re Petrobas, 862 F.3d at 269. “The standard for ascertainability is not demanding. It is designed only to prevent the certification of a class whose membership is truly indeterminable.” Stinson v. City of New York, 282 F.R.D. 360, 373-74 (S.D.N.Y. 2012) (citations and internal quotation marks omitted).
The class members here are ascertainable. KuCoin's transactional records of purchases 27 and sales of the TOMO Tokens during the relevant time period will allow members of the class to be identified using objective criteria with definite boundaries. That is enough at the class certification stage. See In re Petrobas, 862 F.3d at 265 (rejecting the Third Circuit's heightened ascertainability requirement and declining to require a showing of administrative feasibility at the class certification stage).
That said there is a possibility that Williams will not be able to obtain records from KuCoin. KuCoin has not appeared in this action. Williams has pursued discovery from KuCoin in Singapore, but Singapore authorities have not yet permitted Williams to obtain that discovery. (See Dkt. 101-1 (letter from Attorney-General's Chambers of Singapore notifying Plaintiff that it is “unable to accede to” Plaintiff's revised letter of request seeking discovery from KuCoin since, among other reasons, the case had not yet been certified as a class action).) In his brief, Williams asserts that even if the class is unable to ultimately obtain KuCoin's transactional records, members of the class may be identified by publicly accessible blockchain ledger information. (Pl. Mem. at 23.) But when the Court sought confirmation of that assertion, Plaintiff's expert Dr. Edman confirmed the opposite: identification of Token purchasers is not publicly available. (Edman Decl. ¶¶ 41.) Instead, absent discovery from KuCoin, class members would have to self-identify themselves in response to a public notice. (See Edman 28 Decl. ¶ 44.) For now, that is sufficient.
The Court is aware of at least two cases suggesting that token purchasers can be identified through publicly available blockchain information. See Balestra, 2020 WL 4370392 at *5 (finding ascertainability satisfied where plaintiffs “point[ed] out that there is publicly-available information through public blockchains for cryptocurrencies invested[;] ... investor trading records and records from virtual currency exchanges may provide an adequate method of identifying members, and, of course, there is self-identification”); Audet v. Fraser, 332 F.R.D. 53, 72 (D. Conn. 2019) (class was ascertainable where putative class members' cryptocurrency investments could be “confirmed on the Bitcoin blockchain by searching for customers' wallet addresses” and, as plaintiff explained, “any public blockchain website [could] be used to locate and confirm such transactions”). Those cases, however, did not cite any authority for that proposition other than what appears to be counsel's say-so. When this Court asked Plaintiff's counsel to provide factual confirmation of the assertion, counsel provided Dr. Edman's declaration, which confirmed the opposite.
One aspect of the proposed class definition initially gave the Court pause with respect to ascertainability; specifically, that there was no definite end date for the class period. Rather, as initially proposed, the putative class covered the period between September 15, 2017 and “the present.” That time frame has no defined end-point. In class actions, “an open-ended end-date is untenable.” Hart v. Rick's NY Cabaret International, Inc., 967 F.Supp.2d 901, 949 (S.D.N.Y. 2013). While some classes initially have been certified with an open-ended period, “the solution” to the “underlying problem” in such cases has been to modify the definition to end on a specific date. Rodriguez v. It's Just Lunch International, No. 07-CV-9227, 2018 WL 3733944, at *7 (S.D.N.Y. Aug. 6, 2018) (modifying end date to class certification date). In response to the Court's request for clarification of the time period's endpoint, Williams specified it to be July 2, 2021, the date of his motion for class certification. (See Dkt. 116.) With that clarification, the class period is unambiguous and closed-ended.
In words applicable here, the Second Circuit has observed, a class is sufficiently ascertainable where it includes “persons who acquired specific securities during a specific time period ... in domestic transactions” because “[t]hese criteria - securities purchases identified by subject matter, timing, and location - are clearly objective.” In re Petrobras, 862 F.3d at 269. Ascertainability does not stand in the way of certification of the putative class.
IV. The Action Is Properly Brought Under Fed.R.Civ.P. 23(b)(3)
The final inquiry is whether the action qualifies for certification as one of the types of classes recognized by Fed.R.Civ.P. 23(b). In this instance, Plaintiff seeks certification 29 pursuant to 23(b)(3). A class qualifies for certification under Rule 23(b)(3) if it meets the prerequisites of Rule 23(a), and “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3).
A. Predominance
“The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Amchem Products, Inc. v. Windsor, 521 U.S. 591, 623 (1997). Predominance is “satisfied ‘if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof.'” Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir. 2015) (quoting In re U.S. Foodservice Inc. Pricing Litigation, 729 F.3d 108, 118 (2d Cir. 2013)). “While the predominance inquiry is more demanding than the commonality determination required by Rule 23(a), predominance does not require a plaintiff to show that there are no individual issues.” Merrill Lynch, 277 F.R.D. at 111 (emphasis in original) (citing In re NYSE Specialists Securities Litigation, 260 F.R.D. 55, 75 (S.D.N.Y. 2009)). And, even though the extent of damages typically may vary from person to person, “the Second Circuit has routinely found that individualized calculations of damages do not defeat the predominance requirement.” Enea, 2014 WL 1044027 at *7.
Here, common issues predominate over individualized ones because most all elements of Williams' and each proposed class member's claims present questions that are susceptible to class-wide resolution. As discussed in the context of commonality above, these questions 30 include (1) whether the TOMO Tokens are securities under the Howey test, (2) whether KuCoin operated as an unregistered exchange and as an unregistered broker-dealer, (3) whether KuCoin offered or sold the Tokens to members of the class, (4) whether members of the class suffered damages as a result; and (5) whether members of the class are entitled to void their purchase agreements with KuCoin and to recover monies they paid thereunder and/or losses they incurred. An additional common issue is whether the Individual Defendants were “controlling persons” under Section 15(a) of the Securities Act and similar state laws. See Davy, 2020 WL 4460446 at *7 (finding predominance for Section 12(a)(1) class where “it will be necessary to determine whether [the] [t]okens are securities ... whether Defendants are sellers ... [and whether Defendants] are controlling persons”). Individualized issues include the extent to which each class member brought and sold TOMO Tokens and the resulting damages caused thereby. Common issues clearly predominate.
B. Superiority
“‘In general, securities suits . easily satisfy the superiority requirement of Rule 23.'” In re IndyMac Mortgage-Backed Securities Litigation, 286 F.R.D. 226, 242 (S.D.N.Y. 2012) (quoting Lapin v. Goldman Sachs & Co., 254 F.R.D. 168, 187 (S.D.N.Y. 2008)). That, in part, is because “[m]ost violations of the federal securities laws . inflict economic injury on large numbers of geographically dispersed persons such that the cost of pursuing individual litigation to seek recovery is often not feasible.” Wagner v. Barrick Gold Corp., 251 F.R.D. 112, 120 (S.D.N.Y. 2008) (quoting In re Blech Securities Litigation, 187 F.R.D. 97, 107 (S.D.N.Y. 1999). “Multiple lawsuits would be costly and inefficient, and the exclusion of class members who cannot afford separate representation would neither be ‘fair' nor an adjudication of their claims.” Id. 31
Rule 23(b)(3) requires consideration of several factors to make the superiority determination; namely, “(A) the class members' interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.” Fed.R.Civ.P. 23(b)(3).
The factors weigh in favor of certifying the narrowed class.
First, there is nothing before the Court to indicate that absent class members have expressed interest in controlling the prosecution of their individual claims. To the contrary, “[r]equiring each putative class member to proceed individually would be costly and inefficient.” Yi Xiang v. Inovalon Holdings, Inc., 327 F.R.D. 510, 526 (S.D.N.Y. 2018) (citing Merrill Lynch, 277 F.R.D. at 120).
Second, even if some members of the putative class are capable of instituting their own actions, they, and others, “may have suffered losses too small for an individual action to be worthwhile.” Id. (quoting New Jersey Carpenters Health Fund v. Royal Bank of Scotland Group, PLC, No. 08-CV-5310, 2016 WL 7409840, at *11 (S.D.N.Y. Nov. 4, 2016)).
Third, “[c]oncentrating this litigation in a single forum, particularly this one, has clear benefits. It avoids the ‘risk of inconsistent adjudication,' and encourages ‘the fair and efficient use of the judicial system.'” Tsereteli v. Residential Asset Securitization Trust 2006-A8, 283 F.R.D. 199, 218 (S.D.N.Y. 2012) (quoting In re Marsh & McLennan Companies, Inc. Securities Litigation, No. 04-CV-8144, 2009 WL 5178546, at *12 (S.D.N.Y. Dec. 23, 2009)). In addition, this action has been ongoing since early 2020 and is familiar to the Court, which has ruled on earlier motions filed in the case. See Public Employees' Retirement System of Mississippi v. 32 Goldman Sachs Group., Inc., 280 F.R.D. 130, 141 (S.D.N.Y. 2012) “Furthermore, ‘the Southern District of New York is well known to have expertise in securities law.'” Tsereteli, 283 F.R.D. at 218 (quoting Albert Fadem Trust v. Duke Energy Corp., 214 F.Supp.2d 341, 344 (S.D.N.Y. 2002)).
Fourth, there is no evidence of any likely difficulties in managing the class action. “To the extent management issues arise, this Court has the ability to ‘utilize the available case management tools to see that all members of the class are protected, including but not limited to the authority to alter or amend the class certification order pursuant to Rule 23(c)(1)(C), to certify subclasses pursuant to Rule 23(c)(5), and the authority under Rule 23(d) to issue an order ensuring the fair and efficient conduct of the action.'” Merrill Lynch, 277 F.R.D. at 121 (quoting Flag Telecom Holdings, 574 F.3d at 37); see also Blech, 187 F.R.D. at 108 (“If insurmountable management problems were to develop at any point, class certification can be revisited at any time under Fed.R.Civ.P. 23(c) (1)”).
All factors thus point to the superiority of class action treatment to adjudicate this case. See Almonte v. Marina Ice Cream Corp., No. 16-CV-660, 2016 WL 7217258, at *3 (S.D.N.Y. Dec. 8, 2016) (Daniels, J.) (“[T]he class action device is superior to other methods available for a fair and efficient adjudication of the controversy because the class device will achieve economies of scale, conserve judicial resources, preserve public confidence in the integrity of the judicial system by avoiding the waste and delay of repetitive proceedings, and prevent inconsistent adjudications of similar claims”) (internal quotation marks omitted)).
In sum, the proposed class action satisfies the requirements of both Rule 23(a) and 23(b)(3). Class certification therefore is warranted. 33
V. Approval Of Class Counsel
In determining whether class counsel should be approved, Rule 23(g)(1)(A) directs courts to consider four factors: “(i) the work counsel has done in identifying or investigating potential claims in the action; (ii) counsel's experience in handling class actions, other complex litigation, and the types of claims asserted in the action; (iii) counsel's knowledge of the applicable law; and (iv) the resources that counsel will commit to representing the class.” The court may also consider “any other matter pertinent to counsel's ability to fairly and adequately represent the interests of the class.” Fed.R.Civ.P. 23(g)(1)(B). As discussed in the context of determining adequacy of representation under Rule 23(a)(4) above, all four of these factors support appointment of both Roche Freedman and Selendy & Gay as class counsel.
Conclusion
For the foregoing reasons, I recommend that Plaintiff's motion for class certification be GRANTED IN PART for a narrower class that does not include purchasers of Tokens that Plaintiff did not purchase. Accordingly, I recommend:
(1) a class be certified and defined as follows:
All persons who purchased on the KuCoin exchange any TOMO Tokens listed for sale on a domestic U.S. exchange, or who otherwise purchased on the KuCoin exchange TOMO Tokens in a domestic U.S. transaction, between September 15, 2017 and July 2, 2021;
(2) Plaintiff Chase Williams be appointed Class Representative; and
(3) The law firms Roche Freedman LLP and Selendy & Gay PLLC be appointed Class Counsel..
Deadline For Objections
Pursuant to 28 U.S.C. § 636(b)(1) and Rules 72, 6(a), and 6(d) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report 34 and Recommendation. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the Chambers of the Honorable George B. Daniels, U.S.D.J., United States Courthouse, 500 Pearl Street, New York, NY 10007, and to the Chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will preclude the right to object and to seek appellate review. 35