OpenSea is angling to get the lawsuit filed against it by a former Bored Ape Yacht Club NFT owner, who has accused the NFT marketplace of failing to address “security vulnerabilities in its platform” that led to a widely-reported breach that cost users of the marketplace millions of dollars in stolen NFTs. In to the motion to compel arbitration that it filed this month, OpenSea asserts that Plaintiff Timothy McKimmy “repeatedly and unambiguously agreed to OpenSea’s Terms of Service,” which includes a binding arbitration clause, which makes arbitration “the proper forum for this dispute.”
OpenSea argues in the motion to compel arbitration and dismiss the plaintiff’s complaint that it filed with the U.S. District Court for the Southern District of Texas on May 2 that McKimmy agreed to its Terms of Service “through at least three different acceptance flows: when purchasing his first NFT using OpenSea’s services, when connecting his crypto wallets to OpenSea, and when using OpenSea’s mobile application.” Specifically, OpenSea, which maintains the title of the biggest marketplace for NFTs with its $13 billion valuation and roster of more than 80 million NFTs, alleges that “prior to buying or selling NFTs using [its] services, users must first connect their third-party crypto wallets, such as MetaMask or Coinbase Wallet, to OpenSea.” In order to do so, OpenSea says that “users must agree to [its] Terms of Service … [which] notify users upfront, in bold capital letters, that the Terms ‘REQUIRE ANY DISPUTES BETWEEN US TO BE RESOLVED THROUGH INDIVIDUAL ARBITRATION RATHER THAN BY A JUDGE OR JURY IN COURT.”
As a “consistent and frequent OpenSea user since at least December 2021,” OpenSea asserts that McKimmy agreed to its “terms and the arbitration agreements therein when he repeatedly purchased NFTs, connected his crypto wallets to OpenSea, and signed in to OpenSea’s mobile app.” Against that background, OpenSea argues that McKimmy’s negligence and breach of fiduciary duty, trust, contract and implied contract claims fall within the scope of its arbitration agreements, which it says are not “so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforc[ea]ble.”
In furtherance of this claim, OpenSea states that, among other things, its arbitration agreements “provide that both OpenSea and its users agree to waive their ‘RIGHTS TO SUE IN COURT’ and are ‘electing that all claims and disputes be resolved by arbitration.’” Beyond that, OpenSea claims that it “also agrees to pay all arbitration fees upfront if a user ‘cannot afford to pay’ and to reimburse JAMS fees for claims less than $10,000, unless the arbitrator determines the claims are frivolous.” OpenSea users “may also choose how the arbitration should be conducted (e.g., by phone, written submissions, etc.),” the platform states, asserting that McKimmy “cannot show that these provisions do not compare favorably to court proceedings, where users might be required to pay their own fees and may be compelled to testify.”
In addition to arguing that McKimmy’s claims fall within the scope of its terms and thus, are subject to arbitration, OpenSea also contends that its arbitration agreements “provide ‘clear and unmistakable evidence’” that it and McKimmy “intended an arbitrator, not a court, to decide arbitrability,” with the arbitration agreements “expressly and broadly delegate gateway questions to an arbitrator,” and not a court.
With the foregoing in mind, OpenSea – which claims that it met and conferred with counsel for McKimmy on April 28, but that they were unable to resolve the issues underlying its motion to compel arbitration – requests that the court grant its motion to compel arbitration and dismiss McKimmy’s action in its entirety.
Assuming that the court does, in fact, compel arbitration, lawyer and intellectual property researcher Mike Dunford previously stated that McKimmy’s lawsuit against OpenSea “may turn on how much you can get away with disclaiming under New York contract law,” which is the state that OpenSea lists in the choice of law provision in its terms of service. (Among other things, OpenSea’s terms state, “You agree that any dispute, controversy, or claim relating in any way to your access or use of the Service, to any products sold or distributed through the Service, or to any aspect of your relationship with OpenSea, will be resolved by binding arbitration, rather than in court, including threshold questions of the arbitrability of such dispute, controversy, or claim.”)
OpenSea’s filing comes almost three months after McKimmy filed his lawsuit against OpenSea, claiming that his “unquestionably valuable” Bored Ape NFT (#3475) was allegedly stolen from thanks to a phishing attacked targeting OpenSea users, and then sold by an unknown third party.
The case is Timothy McKimmy v. OpenSea, 4:22-cv-00545 (S.D. Tex.).
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