Ripple Wins Court Case but Jury to Decide on XRP Security Status

On June 20, Ripple Labs Inc. achieved a critical legal victory in the federal class action suit filed in the Northern District of California. 

This case, monitored closely by the XRP community, revolves around the classification of the digital asset under US securities law. Judge Phyllis J. Hamilton presided over the case (4:18-cv-06753-PJH), granting Ripple’s motion for summary judgment and dismissing class claims regarding the unregistered sale of XRP.

The court’s ruling in favor of Ripple dismissed both federal and state class claims that alleged XRP was sold as an unregistered security. Pro-XRP lawyer Fred Rispoli explained the court’s decision on social media, emphasizing that the win was procedural rather than definitive. 

“Win for Ripple in the Oakland class action. Judge grants Ripple’s summary judgment motion on federal class claims for unregistered securities as well as the state law securities claims. But these were procedural wins,” Rispoli stated.

Despite this favorable outcome, the court did not make a legal determination on whether XRP itself constitutes a security. Instead, the decision leaves it to a jury to decide if XRP meets the criteria outlined in the Howey test, which determines the status of securities under US law. This means the broader issue of XRP’s classification remains unresolved, with Rispoli noting

“The class action is now over at the district court level. As to whether XRP is a security, however, the Court held it is for a jury to decide whether all three prongs of the Howey test are met.”

The ruling has generated diverse reactions among legal experts. Marc Fagel, another lawyer specializing in the crypto sector, pointed out contradictions with a previous ruling by Judge Torres regarding programmatic sales.

“Just read the opinion. Directly contradicts Torres on programmatic sales (though would’ve been more interesting if the court had gone a step further and found them to be securities sales as a matter of law rather than punting to the jury),” Fagel commented.

This contradiction illustrates the complexities in the legal interpretation of digital assets and suggests that the final resolution on XRP’s status is far from certain. While Ripple has achieved a procedural victory, the question of XRP’s classification as a security continues to loom large, leaving the company and its supporters in a state of legal limbo.

The ongoing litigation involves class action claims against Ripple Labs Inc., its subsidiary XRP II, LLC, and CEO Bradley Garlinghouse. The plaintiffs argue that XRP was offered and sold as an unregistered security, violating federal and state securities laws. Judge Hamilton’s ruling addressed several key issues in the case.

The federal securities claims were dismissed based on the “first-offered” rule under the statute of repose, which bars claims related to offers made more than three years before the lawsuit. Similarly, the state claims were dismissed due to insufficient evidence of privity, a necessary element under California law. This significantly narrows the scope of the lawsuit against Ripple.

However, not all claims were dismissed. The court denied Ripple’s motion for summary judgment on an individual claim against Garlinghouse, which alleges he made misleading statements about his investment in XRP. This claim will proceed to trial, focusing on whether Garlinghouse’s statements influenced investor expectations and decisions.

The Road Ahead for Ripple and XRP

Ripple’s procedural victory offers a temporary respite, but the broader legal questions surrounding XRP’s classification as a security remain unresolved. Rispoli highlighted the limited scope of the ruling: 

“Sadly, it depends. XRP (via Judge Torres) has legal clarity only (1) as it involves the SEC making allegations of federal securities violations and (2) in the Southern District of New York, which other courts can ignore in non-SEC cases.”

As the legal battle continues, the upcoming jury decision on the application of the Howey test to XRP will be crucial. The verdict could have a significant impact on the regulatory treatment of cryptocurrencies in the US. Rispoli emphasized the need for federal legislation to address these issues: 

“Ultimately, crypto world needs to keep pressure on getting federal legislation, because we are on track to having XRP be a security in California but not in New York.”