Michael Mix Examines DAO Diversity Jurisdiction Challenges in Law360

Morrison Cohen Partner Michael Mix authored an article in Law360 titled “O Brother, Where Art DAO? Jurisdiction Issues Abound,” analyzing the subject matter jurisdiction questions that arise when litigants attempt to bring federal court actions against decentralized autonomous organizations (DAOs).

As DAO litigation continues to increase, practitioners face a threshold question before filing suit: in which court does the case belong? While many DAO-related federal cases proceed under federal question jurisdiction, Michael focuses on the largely uncharted territory of DAO lawsuits under diversity jurisdiction and the significant challenges that arise when attempting to establish it.

Focusing on Second Circuit and U.S. Supreme Court case law, the article examines how courts determine citizenship for unincorporated entities, such as LLCs, limited partnerships, labor unions and real estate investment trusts, which take the citizenship of each of their members, and considers how that framework might apply to DAOs. Michael analyzes the recent Eisenberg v. Mango Labs LLC decision, in which a Wyoming federal court held that a DAO, as an “unincorporated group governed by each of its token holders,” requires consideration of every tokenholder's citizenship for diversity jurisdiction purposes.

Michael identifies several practical challenges this reasoning creates for litigants: whether “members” means all token holders or only a subset; how to account for the ever-changing nature of DAO membership as tokens are transferred between users; and how to ascertain the name and domicile of token holders when only wallet addresses are typically known. He concludes that litigants should carefully consider these obstacles before naming a DAO as a defendant in a federal diversity action.

Read the full article here.