Nifty Gateway Wins Motion to Compel Arbitration in NFT Securities Case

News | April 12, 2024 By:

On Tuesday, March 19, 2024, the United States District Court for the Southern District of New York granted digital art online auction platform Nifty Gateway’s motion to compel arbitration in a lawsuit alleging the company violated securities laws.

Judge Analisa Torres ruled that plaintiff John Hastings must arbitrate his claims against Nifty Gateway and its parent company Gemini Trust individually, rather than proceed with a class action lawsuit.

Hastings filed a putative class action complaint against Nifty Gateway in December 2022, claiming the company broke federal securities laws by selling non-fungible tokens (NFTs) called “Nifties” on its platform without registering them as securities. NFTs are digital assets that represent ownership of unique virtual items like digital art, which are recorded on blockchain, a form of distributed ledger technology.

In her ruling, Judge Torres found that Hastings agreed to Nifty Gateway’s terms of use on three separate occasions when creating accounts on the platform in 2020 to purchase Nifties. The terms of use contained an arbitration agreement requiring users to resolve disputes with the company through binding arbitration rather than in court.

While Hastings argued Nifty Gateway failed to properly authenticate the terms of use, Judge Torres determined the company provided sufficient proof through declarations from employees describing the sign-up and terms presentation at the relevant time period. The judge also found the arbitration clause clearly and unambiguously delegated issues of arbitrability to the arbitrator.

Hastings claimed forcing individual arbitration would undermine the class action protections in the Private Securities Litigation Reform Act. However, Judge Torres ruled there was no evidence Congress intended the act to override the Federal Arbitration Act’s preference for enforcing arbitration agreements. Since the securities law does not mention arbitration, the court declined to infer a statutory preemption of the parties’ agreement.

As a result, the Southern District ordered the case to be stayed pending the outcome of arbitration. Unless successfully appealed, Hastings will now have to arbitrate his securities law claims against Nifty Gateway on an individual rather than classwide basis, per the terms of the agreement he assented to when initially accessing the company’s services.

Please contact BlockTribune for access to a copy of this filing.