Securities and Exchange Commission v. Ripple Labs Inc. et al.

Filing 372

ORDER denying #122 Motion to Intervene. For the reasons stated above, Movants' motion to intervene is DENIED. Movants shall be permitted to act as amici curiae, as described in this order. The Clerk of Court is directed to terminate the motion at ECF No. 122. SO ORDERED.. (Signed by Judge Analisa Torres on 10/4/2021) (kv)

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 1 of 11

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 2 of 11

by Defendants, id. ¶¶ 45–47, is a security, and thus, Defendants are in violation of the Securities
Act when they offer and sell XRP without prior registration. FAC ¶¶ 1, 9, 230–31, 430–40. As
part of these allegations, the SEC contends that Defendants created a “secondary market”
wherein individuals who purchased XRP from Defendants resold XRP to others (together, as all
purchasers or holders of XRP not directly affiliated with Defendants, “XRP Holders”), including
on independent trading platforms, id. ¶¶ 89, 154–55, 263–69, 321, and that XRP Holders
invested in the “common enterprise” of increasing XRP’s value with Defendants, id. ¶¶ 290–314.
The SEC also alleges that that Defendants do not sell XRP for “use” or as “currency,” and
reasonable XRP Holders have viewed XRP solely as an investment. Id. ¶¶ 69, 88, 353–91.
Movants contend that the complaint “directly attack[s] XRP Holders” through
mischaracterizations of XRP Holders’ use of XRP and XRP’s connection to Defendants.
Movants Mem. at 7, ECF No. 123. Movants argue that the SEC’s claim that “the very ‘nature of
XRP itself’ makes it a security,” leads to the conclusion that “‘every individual in the world who
is selling XRP would be committing a Section 5 violation,’” and so the XRP Holders’ XRP will
be affected by the outcome of this litigation. Id. at 9 (first quoting FAC ¶¶ 293, 353; then
quoting ECF No. 94 at 44:7–9).
On January 1, 2021, Movants, six XRP Holders moving on behalf of all similarly situated
XRP Holders, filed a petition for a writ of mandamus in the District of Rhode Island to compel
the SEC to amend the complaint to exclude from its claims XRP owned and utilized by XRP
Holders. Id.; Deaton v. SEC, No. 21 Civ. 1 (D.R.I. Jan. 1, 2021), ECF No. 1. On March 14,
2021, Movants withdrew their petition and instead moved to intervene in this action. ECF No.
65; Deaton v. SEC, No. 21 Civ. 1, ECF No. 13. The Court denied Movants’ motion without
prejudice to renewal for failure to comply with the Court’s Individual Practices, ECF No. 68, and
Movants properly filed their motion to intervene on April 19, 2021, ECF No. 122.
2

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 3 of 11

DISCUSSION
I.

Motion to Intervene
A.

Legal Standard

Rule 24 of the Federal Rules of Civil Procedure provides the criteria that a putative
intervenor must meet to intervene either as of right or permissively. Under Rule 24(a),
intervention as of right is granted when all four of the following factors are met:
(1) the motion is timely; (2) the applicant asserts an interest relating to the property
or transaction that is the subject of the action; (3) the applicant is so situated that
without intervention, disposition of the action may, as a practical matter, impair or
impede the applicant’s ability to protect its interest; and (4) the applicant’s interest
is not adequately represented by the other parties.
MasterCard Int’l Inc. v. Visa Int’l Serv. Ass’n, Inc., 471 F.3d 377, 389 (2d Cir. 2006).
Rule 24(b) sets out the standard for permissive intervention: “On a timely motion, the
court may permit anyone to intervene who: (A) is given a conditional right to intervene by a
federal statute; or (B) has a claim or defense that shares with the main action a common question
of law or fact.” Fed. R. Civ. P. 24(b)(1). Under Rule 24(b), a court “considers the same factors
that it considers for intervention as of right.” MASTR Adjustable Rate Mortgs. Tr. 2006-OA3 v.
UBS Real Est. Sec., No. 12 Civ. 7322, 2013 WL 139636, at *2 (S.D.N.Y. Jan. 11, 2013).
“[P]ermissive intervention is wholly discretionary with the trial court.” U.S. Postal Serv. v.
Brennan, 579 F.2d 188, 191 (2d Cir. 1978). However, “[i]n exercising its discretion, the court
must consider whether the intervention will unduly delay or prejudice the adjudication of the
original parties’ rights.” Fed. R. Civ. P. 24(b)(3); Brennan, 579 F.2d at 191.
B.

Analysis

Movants argue they should be permitted to intervene as defendants as of right or, in the
alternative, they should be permitted to intervene permissively, because their property—XRP—is
at “the heart of this case,” and they are not properly represented by either the SEC or Defendants.
3

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 4 of 11

Movants Mem. at 1. Movants contend that the complaint, which they argue alleges that the XRP
they hold and exchange are securities, effectively bring claims against them. Id. at 11. They
concede, however, that intervention as a class, as initially proposed, would likely unduly delay
the action. Movant Reply at 14, ECF No. 186. The SEC argues that Movants are statutorily
barred from intervening insofar as they purport to bring claims against the SEC and
constitutionally barred from intervention as defendants, and, if the Court concludes Movants are
not barred, they should not be permitted to intervene either as of right or permissively. SEC
Opp’n at 10–12, ECF No. 153. Defendants contend that Movants have an interest in the
litigation and are not statutorily barred from intervention, but advocate for limited participation
as either “amici-plus” or limited intervenors in order not to delay the case. Def. Mem. at 12,
ECF No. 152.
The Court concludes that Movants are barred from intervening, but will permit Movants
to participate as amici curiae. Initially, the Court agrees with Movants and the parties that
§ 21(g) of the Securities Exchange Act of 1934, which prohibits parties from “consolidat[ing] or
coordinat[ing]” private claims with enforcement actions brought by the SEC in which equitable
relief is sought, does not per se bar intervention in SEC enforcement actions. See 15 U.S.C.
§ 78u(g); Movant Mem. at 11–13; SEC Opp’n at 13–14; Def. Mem. at 13. Rather, this provision
bars “claims for damages by non-SEC parties . . . (without the SEC’s consent) in the
enforcement action to which they purport to relate.” SEC v. Caledonian Bank, Ltd., 317 F.R.D.
358, 367–68 (S.D.N.Y. 2016). It does not bar intervention for purposes other than adding claims
to an enforcement action. See SEC v. Credit Bancorp, Ltd., 194 F.R.D. 457, 466 (S.D.N.Y.
2000). Therefore, insofar as Movants intend to institute claims against the SEC—which they do
not do in their proposed answer, ECF No. 124-1—§ 21(g) bars that intervention.

4

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 5 of 11

Movants are, however, separately barred from intervening as defendants in the action at
the merits stage. Under the Supreme Court’s decision in Heckler v. Chaney, 470 U.S. 821
(1985), courts have held that they cannot review the SEC’s decision not to take enforcement
action against individuals or entities. See, e.g., Block v. SEC, 50 F.3d 1078, 1085–86 (D.C. Cir.
1995); see also Chaney, 470 U.S. at 832 (holding that courts presumptively have no jurisdiction
to review agency decisions “not to prosecute or enforce, whether through civil or criminal
process”).
There is no case law that addresses the specific circumstances presented here, where
unrelated individuals seek to intervene as defendants, effectively requesting that the Court
compel the SEC to take enforcement action against them. Although the Second Circuit has not
weighed in, persuasive authority, including courts in this Circuit, have held that parties to an
enforcement action cannot force the SEC to join other individuals or entities as defendants
through Federal Rule of Civil Procedure 19, or a motion to dismiss for failure to join a necessary
party under Rule 12(b)(7). See SEC v. Laura, No. 18 Civ. 5075, 2020 WL 1434114, at *3
(E.D.N.Y. Mar. 24, 2020) (collecting cases); see also SEC v. Norstra Energy Inc., No. 15 Civ.
4751, 2016 WL 4530893, at *1 (S.D.N.Y. Jan. 19, 2016). If defendants cannot compel the SEC
to join other individuals or entities as additional defendants, it follows that intervenors cannot
compel the SEC to join them as defendants.
Even if the allegations in the complaint are as far-reaching as Movants contend, Movants
are not currently defendants in this action: the SEC has brought claims against Defendants, not
Movants, and no direct liability can attach to Movants. FAC ¶¶ 430–40. The Court cannot alter
this exercise of discretion by the SEC. SEC v. Princeton Econ. Int’l Ltd., No. 99 Civ. 9667, 2001
WL 102333, *1 (S.D.N.Y. Feb. 7, 2001). And, although this presumption of unreviewability can
be rebutted by a showing that the SEC’s refusal to take an enforcement action was “so extreme
5

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 6 of 11

as to amount to an abdication of its statutory responsibilities,” Chaney, 470 U.S. at 833 & n.4, no
such showing has been made here.
The cases cited by Movants do not contradict this conclusion. Heckler v. Chaney bears
only on the limited circumstances where intervention would effectively compel the SEC to take
enforcement action against the potential intervenors. It does not impact intervention in SEC
enforcement actions in other capacities, such as objection to specific orders which affect the
potential intervenors. See, e.g., SEC v. TheStreet.com, 273 F.3d 222 (2d Cir. 2001) (permitting
intervention to object to discovery rulings that impacted movant); SEC v. First Jersey Sec., Inc.,
843 F.2d 74 (2d Cir. 1988) (same); State of New York v. Scalia., No. 20 Civ. 1689 (S.D.N.Y.
June 29, 2020), ECF No. 99 (permitting intervention in non-enforcement action); Caledonian
Bank, Ltd., 317 F.R.D. at 368 (permitting the possibility of intervention to object to a consent
decree); SEC v. Founding Partners Capital Mgmt. Co. No. 09 Civ. 229, 2009 WL 10671823, at
*1 (M.D. Fla. Aug. 28, 2009) (permitting intervention to object to a court order freezing assets
held in part by movant); Credit Bancorp, Ltd., 194 F.R.D. at 457 (permitting intervention where
movants sought to assert claims against possessions in a receivership); SEC v. Navin, 166 F.R.D.
435 (N.D. Cal. 1995) (permitting intervention where movants sought to assert claims against
defendants). In Movants’ remaining case, SEC v. Flight Transportation Corp., the Eighth
Circuit, in addition to allowing intervention to assert a claim against a defendant, permitted a
woman to intervene as a defendant in an SEC enforcement action brought against her estranged
husband to protect her interest in marital property. 699 F.2d 943, 948–52 (8th Cir. 1983). That
case, however, was decided before Heckler v. Chaney, and, regardless, is not binding on this
Court.
Moreover, the Court concludes that intervention would not be merited in this instance.
Intervention as of right is not necessary here: despite their assertions, Defendants can adequately
6

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 7 of 11

represent Movants’ interest in this case, thus failing the fourth prong of the intervention as of
right test. “[T]he burden to demonstrate inadequacy of representation is generally speaking
minimal.” Butler, Fitzgerald & Potter v. Sequa Corp., 250 F.3d 171, 179–80 (2d Cir. 2001)
(quotation marks and citations omitted). However, where there is an “an identity of interest,” a
presumption of adequate representation by a party already in the action arises, which a movant
must rebut. Id. A movant can effect this rebuttal by demonstrating “evidence of collusion,
adversity of interest, nonfeasance, or incompetence” regarding the existing party. Id. at 180.
Here, Movants and Defendants have an identity of interest because they share the
identical ultimate objective. E. End Eruv Ass’n, Inc. v. Town of Southampton, No. 13 Civ. 4810,
2014 WL 4773989, at *6 (E.D.N.Y. Sept. 24, 2014) (applying the presumption where movants
and the party had the same “ultimate objective,” even if they had different strategies and motives
for achieving that objective). Both Movants and Defendants seek the same outcome: a holding
that XRP, particularly XRP currently being traded, is not a security. Compare Movant Mem. at
15–22, with Ripple Labs Ans. at 7–8, ECF No. 43.
Movants contend that Defendants are “incompetent” to represent their interest because
they do not have access to the information that Movants have. Movant Reply at 11–12. The
Second Circuit has not given a precise definition of adequacy of representation. However, in its
discussion in Butler, the Second Circuit cited United States v. International Business Machines,
which viewed competence as “relating to the ability, both legally and practically, of an existing
party to represent an interest of a proposed intervenor.” 62 F.R.D. 530, 538 n.20 (S.D.N.Y.
1974). Here, there are no legal or practical constraints preventing Defendants from asserting the
arguments Movants put forth regarding XRP and obtaining the relevant facts through
discovery—for instance, by deposing Movants. Id. Although Defendants may not stress certain
arguments to the extent Movants desire, disagreement as to litigation strategy is not inadequacy.
7

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 8 of 11

St. John’s Univ., New York v. Bolton, No. 08 Civ. 5039, 2010 WL 5186823, at *3 (E.D.N.Y.
Dec. 10, 2010) (“[The party’s] representation is not inadequate simply because they have
different ideas about how best to achieve [their mutual] goals.” (quoting United States v. City of
New York, 190 F.3d 360, 367 (2d Cir.1999))), aff’d, 450 F. App’x 81 (2d Cir. 2011). Because
Defendants can adequately represent Movants, Movants are not entitled to intervention as of
right.
Similarly, permissive intervention is inappropriate here. The Second Circuit has noted
that permissive intervention in SEC enforcement actions is disfavored. SEC v. Everest Mgmt.
Corp., 475 F.2d 1236, 1240 (2d Cir. 1972). Here, the threshold of Rule 24(b) is met because
there are common questions of law and fact between Movants’ and Defendants’ assertions
regarding the status of XRP. However, intervention is nevertheless not warranted because it
would “unduly delay or prejudice the adjudication of the rights of” the SEC and Defendants. Id.
at 1239.
“[W]here a grant of a motion to intervene would require further discovery, a court may
properly deny the motion for prejudicing the existing parties due to delay.” Trs. of Nat’l Ret.
Fund v. Fireservice Mgmt. LLC, 384 F. Supp. 3d 412, 420 (S.D.N.Y. 2019) (quotation marks and
citation omitted). And, both Defendants and Movants have stressed the need for quick resolution
of this case. Def. Mem. at 12; Movant Reply at 14; see also ECF No. 234. Although Movants
say that they do not intend to seek further discovery, Movant Mem. at 14, the SEC states that,
should the Court grant intervention, it would seek discovery from Movants, SEC Opp’n at 22.
Discovery in this action has already been extended, ECF No. 246, and the Court is not inclined to
permit further delay by granting intervention and prolonging discovery when, as discussed infra,
other avenues are available for Movants to inform the Court of their views.
Accordingly, Movants’ motion to intervene is DENIED.
8

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 9 of 11

II.

Amici Curiae
Movants shall, however, be permitted to act as amici curiae.1 “There is no governing

standard, rule or statute prescribing the procedure for obtaining leave to file an amicus brief in
the district court,” and so deciding whether to permit an individual to act as amicus curiae lies in
the “firm discretion” of the district court. Lehman XS Tr., Series 2006-GP2 v. Greenpoint
Mortg. Funding, Inc., No. 12 Civ. 7935, 2014 WL 265784, at *1 (S.D.N.Y. Jan. 23, 2014)
(quotation marks and citation omitted). Usually, an amicus brief should be allowed in the
following circumstances:
when a party is not represented competently or is not represented at all, when the
amicus has an interest in some other case that may be affected by the decision in
the present case (though not enough affected to entitle the amicus to intervene and
become a party in the present case), or when the amicus has unique information or
perspective that can help the court beyond the help that the lawyers for the parties
are able to provide.
Citizens Against Casino Gambling in Erie Cnty. v. Kempthorne, 471 F. Supp. 2d 295, 311
(W.D.N.Y. 2007) (quoting Ryan v. Commodity Futures Trading Comm’n, 125 F.3d 1062, 1063
(7th Cir.1997)).
The Court concludes that amici status strikes a proper balance between permitting
Movants to assert their interest in this case and allowing the parties to remain in control of the
litigation. See Waste Mgmt. of Penn., Inc. v. City of York, 162 F.R.D. 34, 36 (M.D. Pa. 1995)
(“The named parties should always remain in control, with the amicus merely responding to the
issues presented by the parties. An amicus cannot initiate, create, extend, or enlarge issues.
Further, an amicus has no right to appeal or dismiss issues.”). Movants may view XRP
differently from Defendants and thus may stress different arguments, and so, even if intervention

Because all parties oppose Movants’ class certification, Def. Mem. at 15, Gov’t Opp’n at 22, and Movants concede
it would delay the action, Movant Reply at 14, the Court shall consider only whether to grant Movants amici status
in their individual capacities.
1

9

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 10 of 11

is unavailable, they will provide the Court with a meaningful perspective, and will help ensure
“complete and plenary presentation of difficult issues so that the [C]ourt may reach a proper
decision.” Liberty Res., Inc. v. Phila. Hous. Auth., 395 F. Supp. 2d 206, 209 (E.D. Pa. 2005)
(citation omitted); see also Portland Pipe Line Corp. v. City of S. Portland, No. 15 Civ. 54, 2017
WL 79948, at *5 (D. Me. Jan. 9, 2017) (“[T]he Court views the amici briefs as desirable because
they represent third parties whose particular interests may be affected by the Court’s ruling and
whose particular interests are echoed in broader public interests.”).
However, in order to maintain the balance between parties and amici, the Court will not
permit Movants, as amici, to offer evidence or present witnesses. Strasser v. Doorley, 432 F.2d
567, 569 (1st Cir. 1970) (“An amicus who argues facts should rarely be welcomed.”).
Defendants have the opportunity and motive to acquire the evidence Movants would offer, and
so permitting Movants to present it instead would result in “an end run around court-imposed
limitations on the parties, including discovery restrictions [and] the rules of evidence.” Portland
Pipe Line Corp., 2017 WL 79948, at *5.
The SEC argues that amici status is inappropriate because Movants are not neutral
parties. SEC Reply at 7–8, ECF No. 189. However, courts have accepted that “by the nature of
things an amicus is not normally impartial,” United States v. Gotti, 755 F. Supp. 1157, 1158
(E.D.N.Y. 1991) (quoting Strasser, 432 F.2d at 569), and so “there is no rule . . . that amici must
be totally disinterested,” Concerned Area Residents for the Environment v. Southview Farm, 834
F. Supp. 1410, 1413 (W.D.N.Y. 1993) (quoting Hoptowit v. Ray, 682 F.2d 1237, 1260 (9th Cir.
1982)); see also Club v. Federal Emergency Management Agency, No. 07 Civ. 608, 2007 WL
3472851, at *1–2 (S.D. Tex. Nov. 14, 2007) (discussing the variety of ways courts have handled
partisan amici). Therefore, although the Court notes Movants’ partiality, that bias does not bar
their participating as amici. See Jin v. Ministry of State Sec., 557 F. Supp. 2d 131, 136–37, 137
10

Case 1:20-cv-10832-AT-SN Document 372 Filed 10/04/21 Page 11 of 11

n.6 (D.D.C. 2008) (permitting the movant to act as amicus to assist with “significant legal
issues,” although acknowledging the movant’s “highly partisan position”). Moreover, by not
permitting Movants to present evidence, the Court will limit their participation to legal as
opposed to factual issues, preventing prejudice to the SEC.
Accordingly, Movants, in their individual capacities, shall be permitted to act as amici
curiae in this action. As such, Movants shall be allowed to assist the Court by briefing legal
issues relevant to the case as approved in advance by the Court. The Court contemplates that
such assistance will be most beneficial during briefing on dispositive motions, but may exercise
its discretion to request or deny further applications as appropriate.
CONCLUSION
For the reasons stated above, Movants’ motion to intervene is DENIED. Movants shall
be permitted to act as amici curiae, as described in this order.
The Clerk of Court is directed to terminate the motion at ECF No. 122.
SO ORDERED.
Dated: October 4, 2021
New York, New York

11