Dapper Labs has consented to a $4 million settlement in the NBA Top Shot NFT class action lawsuit. Legal representatives of investors who bought non-fungible tokens (NFTs) from Dapper Labs have submitted a motion seeking preliminary approval of the settlement in the U.S. District Court for the Southern District of New York.
The class action lawsuit claimed that Dapper Labs, the entity behind NBA Top Shot, breached federal securities laws by vending crypto collectibles called moments without registering them as securities. NBA Top Shot permits users to buy, trade, and collect digital video highlights from NBA games as NFTs on the Flow blockchain.
Originally initiated in New York state court in May 2021, the lawsuit asserted that Dapper Labs’ NFT sales amounted to an unregistered securities offering under the Howey test, as established by the Supreme Court. This examination assesses whether an asset embodies the essential traits of an investment contract, including an anticipation of profits arising from the efforts of others. Dapper Labs refuted the accusations and transferred the case to federal court.
Over the next two years, the parties engaged in extensive litigation, including a motion to dismiss filed by Dapper Labs, which was denied by the court. Discovery involved both sides exchanging documents and interrogatories and multiple meet-and-confers over electronic discovery issues. In January 2024, the parties participated in an all-day mediation with an experienced mediator and ultimately agreed in principle to a $4 million settlement.
Under the proposed settlement, Dapper Labs does not admit any wrongdoing but agrees to establish a settlement fund and implement certain business changes. The lawyers for the plaintiffs will now ask the court to preliminarily approve the settlement and certify the class action for settlement purposes only. A future settlement fairness hearing will be scheduled where final approval will be considered after class members are given notice and the opportunity to object.
If approved, the settlement would resolve claims on behalf of all persons who purchased NFTs called NBA Top Shot Moments from Dapper Labs during the class period. This represents a favorable outcome for investors, avoiding the risks of continuing litigation, given the complex legal issues around whether NFTs and cryptocurrencies constitute securities. The court will review the settlement to ensure it is fair and reasonable.