Judge’s Recommendation in NFT Golf Club Membership Dispute Favors Blockchain Firm Ethereal, Allowing Case to Proceed
On Thursday, January 25, 2024, United States Magistrate Judge Dustin M. Howell issued a recommendation in a contractual dispute over the use of non-fungible tokens, or NFTs, for golf club memberships.
The case involved Austin Beach Club, LLC (ABC), which planned to build an innovative golf course in Austin, Texas featuring music venues, a social club, and water activities in addition to golf. ABC sought to partner with Ethereal, LLC, a blockchain consulting firm, to provide memberships to the golf club in the form of NFTs.
NFTs are unique digital assets that represent real-world items like artwork or, in this case, memberships. They are bought and sold online, and each one is uniquely identifiable thanks to blockchain technology. Ethereal pitched two types of NFT membership tokens to ABC – a local membership providing unlimited access for $9,500, and a global membership allowing eight days of access annually for $2,500. Part of the appeal of NFT memberships was that they could be resold or leased to non-members.
ABC and Ethereal entered into a Master Services Agreement whereby Ethereal would develop the NFT marketplace and digital tokens in exchange for consulting fees and a percentage of revenue in perpetuity. However, construction delays on the golf course caused relationship issues, and in February 2023, ABC terminated the agreement and said it would transition to traditional memberships instead of using NFTs.
This led to a dueling breach of contract lawsuits between the parties. In his recommendation, Judge Howell analyzed the claims and evidentiary issues raised regarding the existence and terms of the alleged contract(s). On the key claim of breach of the Master Services Agreement, Judge Howell determined Ethereal had plausibly argued the agreement was accepted by its partial performance, overcoming potential statute of fraud issues raised by ABC.
The recommendation addresses several other counterclaims and evaluates what evidence is properly considered at the motion to dismiss stage. Ultimately, Judge Howell suggests denying ABC’s motion to dismiss Ethereal’s amended counterclaims, allowing the contractual issues between the parties to proceed to the next stage of litigation. Judge Howell’s recommendation further stated that the case be removed from the Magistrate Judge’s docket and returned to the docket of Robert Pitman, district judge of the United States District Court for the Western District of Texas.
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