A California judge has ruled that members of decentralized autonomous organizations (DAOs) can be held liable for the actions of other members under the state's association law.
On November 18, Judge Vince Chhabria of the U.S. District Court for the Northern District of California ruled that the entity controlling Lido DAO qualifies as an association under California common law. As a result, its members cannot avoid liability for the organization’s actions.
Lido DAO “Partners” Are Not Immune to Lawsuits
The lawsuit stems from a complaint by Andrew Samuels, who purchased tokens issued by Lido DAO. The investor sued the organization to recover his losses. Samuels alleged that the tokens were unregistered securities, arguing that Lido DAO should have registered them with the U.S. Securities and Exchange Commission.
“Samuels asserts that because Lido DAO was never a registered security, it is liable for his losses under Section 12(a)(1) of the Securities Act,” the lawsuit says.
The court ruled that Samuels had made a reasonable allegation that Lido DAO and its apparent partners could not claim immunity from liability. According to the filing, the judge determined that Lido DAO qualified as a joint venture under California law, which holds the partners accountable.
Samuels argues that the four major institutional investors in Lido — Paradigm Operations, Andreessen Horowitz, Dragonfly Digital Management, and Robot Ventures — acted as partners in the Lido DAO and should be held accountable.
In response, four related entities filed motions to dismiss the lawsuit. However, only one motion was granted. Court records state:
“The bottom line is that the motion to dismiss filed by Robot Ventures was granted, because Samuels failed to allege that Robot Ventures was a member of the Lido consortium. All other motions to dismiss were denied.”
The judge concluded that Paradigm, Andreessen Horowitz, and Dragonfly were considered general partners due to their participation in the operation and governance of Lido DAO. However, Robot Ventures was exempted from liability due to a lack of evidence that it was a general partner.
A “big shock” to decentralized governance
Miles Jennings, legal counsel and head of decentralization at a16z Crypto, described the ruling as a major blow to decentralized governance.
Source: Miles Jennings
Jennings explained that even posting on a forum could be enough to make DAO members liable for the actions of other members under common association law, according to the ruling.
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