Hodl Law, Pllc v. Ussec

• Court: Court of Appeals for the Ninth Circuit
• Decided: August 22, 2024
• Docket: 23-55810
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS AUG 22 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

HODL LAW, PLLC, No. 23-55810

Plaintiff-Appellant, D.C. No. 3:22-cv-01832-L-JLB v.

U.S. SECURITIES & EXCHANGE MEMORANDUM* COMMISSION,

Defendant-Appellee.

Appeal from the United States District Court for the Southern District of California M. James Lorenz, District Judge, Presiding

Argued and Submitted July 18, 2024 Pasadena, California

Before: WARDLAW, PAEZ, and SANCHEZ, Circuit Judges.

Hodl Law, PLLC (“Hodl Law”) appeals the district court’s order granting

the Securities and Exchange Commission’s (“SEC”) motion to dismiss for lack of

subject matter jurisdiction. We have jurisdiction under 28 U.S.C. § 1291, and we

affirm.

1. The district court correctly concluded that we lack subject matter

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. jurisdiction because Hodl Law failed to allege a “case or controversy” within the

meaning of Article III, section 2 of the United States Constitution. See Thomas v.

Anchorage Equal Rights Comm’n, 220 F.3d 1134, 1139 (9th Cir. 2000) (“[T]he

Constitution mandates that prior to our exercise of jurisdiction there exist a

constitutional ‘case or controversy,’ that the issues presented are ‘definite and

concrete, not hypothetical or abstract.’”) (quoting Railway Mail Ass’n v. Corsi, 326

U.S. 88, 93 (1945)).

Hodl Law failed to demonstrate “a realistic danger” that the SEC will bring

an enforcement action charging that Hodl Law’s use of the Ethereum blockchain

network or the digital asset Ether violate the Securities Act of 1933, 15 U.S.C. §

77a et. seq. (“Securities Act”). LSO, Ltd. v. Stroh, 205 F.3d 1146, 1154 (9th Cir.

2000) (quoting Babbitt v. United Farm Workers Nat’l Union, 442 U.S. 289, 298

(1979)). When evaluating whether there is a realistic danger of prosecution, we

consider: “(1) whether the plaintiff has articulated a concrete plan to violate the

law in question; (2) whether the prosecuting authorities have communicated a

specific warning or threat to initiate proceedings; and (3) the history of past

prosecution or enforcement under the challenged statute.” Wolfson v. Brammer,

616 F.3d 1045, 1058 (9th Cir. 2010).

If the SEC determines that transactions involving Ether or the Ethereum

network violate the Securities Act, Hodl Law would already be in violation of the

2 law because it currently engages in such transactions as part of its law practice.

But Hodl Law’s complaint contains no allegations that the SEC has investigated,

prosecuted, or threatened to investigate or prosecute the law firm’s use of Ether or

Ethereum. The SEC has not taken an official position as to whether Ether or

Ethereum is a “security” under the Securities Act, and it is possible that the

Commission will never decide that Ether or Ethereum is a “security” under the

Securities Act. See Alcoa, Inc. v. Bonneville Power Admin., 698 F.3d 774, 793

(9th Cir. 2012) (“[C]laims that are based solely on harms stemming from events

that have not yet occurred, and may never occur,” do not constitute “injury that is

concrete and particularized enough to survive the standing/ripeness inquiry.”

(quoting Bova v. City of Medford, 564 F.3d 1093, 1096–97 (9th Cir. 2009))). And

although Hodl Law cites to several examples of SEC enforcement actions against

other cryptocurrency users, in none of those cases did the SEC allege either that

Ether is a security or that the transactions on the Ethereum network violated the

Securities Act. Therefore, “[c]onsidering the applicable factors, we hold that any

threat of enforcement or prosecution against [Hodl Law] in this case—though

theoretically possible—is not reasonable or imminent.” Thomas, 220 F.3d at 1141.

Hodl Law has also failed to allege an economic injury that is “concrete and

particularized.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992).

Although “[e]conomic injury caused by a proscriptive statute is sufficient for

3 standing,” Mont. Shooting Sport Ass’n v. Holder, 727 F.3d 975, 979 (9th Cir.

2013), the alleged injury cannot be “a hypothetical risk of prosecution but rather

actual, ongoing economic harm resulting from” the inability to engage in the

proscribed conduct, Nat’l Audobon Soc’y, Inc. v. Davis, 307 F.3d 835, 855 (9th

Cir. 2002), opinion amended in other respects on denial of reh’g, 312 F.3d 416

(9th Cir. 2002). Hodl Law has not alleged that it is currently suffering economic

injury caused by the SEC, but instead alleges that it may suffer economic harm if

the SEC decides to bring an enforcement action against it or anyone else alleging

that Ether is a security, because this may cause the value of Ether to decrease. This

is insufficient to satisfy the Constitution’s requirements “because the supposed

injury has not materialized and may never materialize.” Mont. Env’t Info. Ctr. v.

Stone-Manning, 766 F.3d 1184, 1190 (9th Cir. 2014).

Nor has Hodl Law sufficiently alleged that the SEC’s failure to provide

guidance on the security status of Ether and Ethereum presents a case or

controversy under our “firm prediction” rule. “[T]he ‘firm prediction’ rule . . .

eliminates the need to await an inevitable application of a regulation to a plaintiff

before determining a claim to be justiciable,” Chang v. United States, 327 F.3d

911, 922 (9th Cir. 2003), and applies where we can firmly predict that a plaintiff

will apply for a benefit and that an agency will deny that benefit, Immigrant

Assistance Project of L.A. Cnty. Fed’n of Labor (AFL-CIO) v. INS, 306 F.3d 842,

4 861–62 (9th Cir. 2002). Hodl Law argues that it satisfies this rule because it

previously applied for a benefit by requesting SEC guidance on the security status

of Ethereum and Ether, and it is certain that the SEC will deny that benefit because

the agency has continuously failed to respond to Hodl Law’s and others’ requests

for guidance. But Hodl Law has not identified any authority that requires the SEC

to engage in specific rulemaking or respond to private parties’ requests for

guidance. Therefore, because no statute or regulation confers this benefit, the

district court correctly determined that the “firm prediction” rule is inapplicable.

2. The district court did not err in concluding that Hodl Law cannot

bring its claim under the Administrative Procedure Act (“APA”). Hodl Law has

failed to establish that the SEC has engaged in “final agency action” that is

reviewable under the APA. 5 U.S.C. § 704.1 Under the APA, “an agency action is

final only if it both (1) marks the consummation of the agency’s decisionmaking

process—it must not be of a merely tentative or interlocutory nature, and (2) is one

by which rights or obligations have been determined, or from which legal

consequences will flow.” Ctr. for Biological Diversity v. Haaland, 58 F.4th 412,

417 (9th Cir. 2023) (quotation marks and alterations omitted). Although Hodl Law

1 Because Hodl Law failed to allege a “case or controversy” sufficient to satisfy the Constitution’s jurisdictional requirements, we do not reach Hodl Law’s argument that the Major Questions Doctrine prevents the SEC from asserting its authority over cryptocurrencies under the Securities Act.

5 contends that the 2018 speech given by William Hinman, the then-SEC Director of

the Division of Corporate Finance, constitutes final agency action, Hinman

explicitly stated that the contents of the speech constituted his personal views, and

the speech is therefore not “a definitive statement of [the] agency’s position.”

Assoc. of Am. Medical Colleges, 217 F.3d at 780. Additionally, the speech was not

the product of the SEC’s formal voting or delegation procedures, and thus does not

have “the status of law.” Id. Although a plaintiff may bring an APA claim to

“compel agency action unlawfully withheld or unreasonably delayed,” 5 U.S. C. §

706(1), “a claim under § 706(1) can proceed only where a plaintiff asserts that an

agency failed to take a discrete agency action that it is required to take,” Norton v.

S. Utah Wilderness All., 542 U.S. 55, 64 (2004). But Hodl Law’s broad challenge

to the SEC’s failure to issue guidance regarding the security status of

cryptocurrencies is not “discrete,” and because Hodl Law fails to identify any

authority that requires the SEC to promulgate rules or respond to private parties’

requests for guidance, such action is also “not demanded by law.” Id. at 65.

3. The district court properly dismissed Hodl Law’s complaint with

prejudice because amendment would be futile. United States v. Corinthian

Colleges, 655 F.3d 984, 995 (9th Cir. 2011) (“Under futility analysis, ‘[d]ismissal

without leave to amend is improper unless it is clear, upon de novo review, that the

complaint could not be saved by any amendment.’” (citation omitted)). Hodl Law

6 argues that it would amend its complaint to plead claims under the First and Fifth

Amendment of the United States Constitution. But these constitutional claims are

also dependent on the hypothetical possibility that the SEC will bring an

enforcement action against Hodl Law alleging that Ether or Ethereum is a security.

Because Hodl Law has failed to allege a “a realistic danger” of such enforcement

action, LSO, Ltd., 205 F.3d at 1154, we also lack subject matter jurisdiction over

these claims, and thus an amendment adding these claims would be futile.2

AFFIRMED.

2 Hodl Law’s motion to strike portions of the SEC’s Rule 28(j) letter dated July 22, 2024 is denied as moot.