A Decentralized Autonomous Organization, or DAO, is a governance structure popular with devotees of cryptocurrencies and blockchain technologies. It is decentralized because holders of tokens, rather than a board of managers, make decisions. See Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO.
In Sarcuni v. bZX DAO, 2023 WL 2657633, the plaintiffs filed a purported class action against several defendants, alleging that each is a general partner of bZX DAO, a purported Decentralized Autonomous Organization. The plaintiffs' claims arose from an alleged hack of a that resulted in the theft of $55 million in cryptocurrency.
In ruling on the defendants' motion to dismiss pursuant to Rule 12(b)(6), Judge Larry Alan Burns considered whether the plaintiffs had sufficiently pled the existence of a partnership under California law. To do so, the plaintiffs must plead sufficient facts to demonstrate that the bZx DAO is:
- an association of two or more persons
- carrying on as co-owners of
- a business for profit.
See Cal. Corp. Code § 16202(a). Although noting that this was a case of first impression, Judge Burns disagreed with the contention that recognizing the bZx DAO as a general partnership would be "radical expansion and alteration of long-standing principles of partnership law [that] should not be countenanced." Accepting the plaintiffs' allegations as true, Judge Burns denied the defendants' motion to dismiss.
Readers may recall that last year, Judge William H. Orrick reached a different conclusion finding that another DAO could be sued as an unincorporated association. See Judge Orrick Rules A Decentralized Autonomous Organization May Be Sued As An Unincorporated Association.