YouTuber Logan Paul’s bid to dismiss a proposed class-action lawsuit over his defunct non-fungible token (NFT) project CryptoZoo should be allowed, says a Texas magistrate judge.
Magistrate Judge Ronald Griffin advised an Austin federal court on Thursday that the class group had not sufficiently tied Paul to their claims that they lost money by buying into the CryptoZoo project.
The recommendation could see a federal judge drop the suit unless the class updates it.
The group is made up of CryptoZoo buyers who first sued Paul and others allegedly tied to the project in February 2023, alleging it was a “rug pull” that promised perks which never materialized.
However, Griffin said the class should be allowed to amend all but one of their 27 claims against Paul, but said a claim alleging he committed commodity pool fraud should be permanently dismissed.
“Mental gymnastics” needed for commodity pool fraud claim
Judge Griffin said in his 75-page report that his recommendation to dismiss the lawsuit’s commodity pool fraud claim came as the court “does not follow Plaintiffs’ logic.”
The class argued that CryptoZoo NFTs were an option contract as they started as “eggs” that “hatch” into animals, which then can be bred with others to create hybrid animals that could be traded.
“In other words, because purchasers buy CZ [CryptoZoo] NFTs unaware of their value until they hatch, and because the CZ NFT animals can be bred with others to create hybrid NFTs, an option contract is thereby formed,” Judge Griffin wrote.
“The mental gymnastics required to come to this conclusion are truly dizzying,” he added. “Plaintiffs do not explain—nor can the Court understand—how their purchases of CZ NFTs create option contracts or contracts for future delivery.”
Other claims fail to tie in Paul
Judge Griffin said that the lawsuit failed to properly connect Paul to the 26 other claims made against him, saying they hadn’t yet shown evidence that he directly and personally benefited from CryptoZoo’s collapse.
The lawsuit brought claims of fraud, unjust enrichment, negligence, breach of contract, fraud conspiracy, aiding and abetting fraud and breaches of consumer law in multiple states, among others.
Judge Griffin said in some cases the complaint gave “only fragments of facts accompanied by vague attributions of conduct to ‘Defendants’” or looked to “jam together two pieces of different puzzles in the vain hope of producing a final, cohesive product.”
“Unfortunately, the caselaw does not support this tactic.”
Paul refunded CryptoZoo buyers
The class group sued Paul and CryptoZoo co-founders Eduardo Ibanez and Jake Greenbaum in 2021, and Paul alleged in January 2024 that the duo conned him, causing CryptoZoo’s collapse, which Judge Griffin urged the court in July to rebuff.
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In January 2023, Paul promised to make a plan for CryptoZoo and put aside $2.3 million for refunds for CryptoZoo buyers a year later under the condition that claimants agreed not to sue over the project.
Buyers were refunded 0.1 Ether (ETH), the same amount the CryptoZoo NFTs were originally sold for in 2021.
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