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US Court of Appeals Rejects Class Action Lawsuit Against Uniswap
The US Court of Appeals for the Second Circuit has issued a ruling that largely agrees with a lower court’s 2023 decision to toss out a class action lawsuit against decentralized exchange Uniswap.
A group of investors originally sued Uniswap Labs, the company behind the decentralized protocol of the same name, and some of its venture capital investors in 2022, alleging that the company was responsible for harming investors by allowing scam tokens to be issued on its protocol.
Lower Court’s Ruling
District Court Judge Katherine Polk Failla of the Southern District of New York (SDNY) sided with Uniswap in 2023 and scrapped the suit before it went to trial, likening the plaintiffs’ arguments to “a suit attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer.”
Appeal and Ruling
Plaintiffs appealed Failla’s ruling in September 2023, but were largely shut down by the fresh decision from the Second Circuit on Wednesday. The Second Circuit judges affirmed Failla’s decision to throw out the plaintiffs’ claims under both the Securities Act and the Exchange Act, writing:
“In sum, we agree with the district court that it ‘defies logic’ that a drafter of a smart contract, a computer code, could be held liable under the Exchange Act for a third-party user’s misuse of the platform,” the filing read.
State Law Claims Vacated and Remanded
The only part of Failla’s ruling that was vacated and remanded back to a district court – meaning the lower court will hear this sliver of the plaintiffs’ case again – were the state law claims, which essentially seek to try similar allegations under state, rather than federal law, in New York, North Carolina, and Idaho.
Win for Uniswap
The ruling is a win for Uniswap, fresh off the heels of Tuesday’s announcement that the US Securities and Exchange Commission (SEC) would drop its investigation into the decentralized exchange, which, under former SEC Chairman Gary Gensler, was being probed for allegedly operating as an unregistered securities broker and unregistered securities exchange, as well as issuing an unregistered security.
Conclusion
In conclusion, the US Court of Appeals’ decision is a significant victory for Uniswap, as it reaffirms the lower court’s ruling that the company is not liable for the actions of third-party users on its protocol. This decision is a major setback for the plaintiffs and a significant win for the decentralized exchange.
FAQs
- What is the significance of the court’s ruling? The ruling is a significant victory for Uniswap, as it reaffirms the lower court’s decision that the company is not liable for the actions of third-party users on its protocol.
- What was the original lawsuit about? The original lawsuit was brought by a group of investors who alleged that Uniswap was responsible for harming investors by allowing scam tokens to be issued on its protocol.
- What was the lower court’s ruling? The lower court’s ruling was that Uniswap was not liable for the actions of third-party users on its protocol, likening the plaintiffs’ arguments to “a suit attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer.”
- What is the next step? The state law claims will be remanded back to a district court, where they will be heard again.
- What does this mean for Uniswap? The ruling is a significant win for Uniswap, as it reinforces the company’s position that it is not liable for the actions of third-party users on its protocol.
