Ripple fights back against striking of ‘fair notice’ defense

  • Ripple sets forth in a letter to Judge Torres why the SEC’s anticipated motion to strike the “fair notice” defense is improper.
  • The SEC cannot cite a single case in which the fair notice defense was rejected at the outset of the litigation and therefore “relabels” Ripple’s defense.

The legal battle between the US Securities and Exchange Commission (SEC) and Ripple continues to provide news and updates on a quasi-daily basis. Ripple Labs yesterday filed a letter with the court to reject the SEC’s anticipated motion to strike the “fair notice” defense. As CNF reported, the SEC filed a letter seeking to have one of Ripple’s key defenses declared “legally improper.”

The SEC’s anticipated motion to strike is meritless. The striking of affirmative defenses is disfavored in this Circuit and the SEC cannot remotely meet the high burden of showing that there is no question of fact or law that might allow the defense to succeed.

First, Ripple’s lack of fair notice defense more than satisfies the liberal pleading standard and thus cannot be struck. Second, Ripple’s fair notice defense requires factual inquiry and context, which is why courts address this defense on the merits with the benefit of a developed factual record.

Ripple’s legal team argues that the SEC “tellingly does not cite a single case” in which a court rejected the “fair notice” defense at the outset of litigation, and Ripple is likewise “unaware of any such authority.” Instead, the SEC attempted to sidestep this issue by relabeling Ripple’s defense as equitable (laches or estoppel) or void-for-vagueness defense:

But Ripple has not asserted those defenses and the SEC’s attempt to change the subject and create a straw person should be rejected out of hand.

Third, Ripple argues that “even if the fair notice defense involved a “purely legal question” – which it does not – the Second Circuit has cautioned that disputed and substantial legal issues should not be decided on a motion to strike without the benefit of a developed record.” Just the day before yesterday, Ripple accused the SEC of withholding exculpatory evidence.

Sufficient evidence to justify a fair notice

Further, Ripple’s brief cites the familiar examples and arguments as to why Ripple did not receive a fair notice: XRP’s unfettered trading on over 200 exchanges; the statements by regulators in Singapore, Japan, and the United Kingdom that XRP is not a security; SEC communications with third parties; statements by senior SEC officials in 2018 that Bitcoin or Ether are not securities; FinCEN’s determination in 2015; and SEC enforcement actions against Kik and Telegram, which “engaged in conduct that did not resemble that of Ripple.”

For these reasons, Ripple argues that the strike of the fair notice is not lawful:

The SEC’s anticipated motion to strike is fatally flawed at the outset because Ripple’s lack of fair notice defense is well-pled. It states a valid defense and sufficiently alleges facts. Nothing more is required

At the end of the letter, Ripple asks the court not to set a joint trial date for Brad Garlinghouse’s and Chris Larsen’s motions to dismiss and Ripple Lab’s fair notice hearing:

Should the SEC proceed with filing this meritless motion to strike, Ripple respectfully requests that this Court set its default briefing schedule unlinked to the individual defendants’ motions to dismiss – as one has no bearing on the other.

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