Morrison Cohen Obtains Full Dismissal for Client in Case Involving Standing to Sue on Behalf of a DAO

The U.S. District Court for the District of Puerto Rico granted a significant victory to Morrison Cohen client Maximilian Schneider, one of the defendants in an action brought by Mango Labs, LLC concerning a decentralized digital assets project called Mango Markets. Mango Markets is governed by the Mango DAO, a decentralized autonomous organization (DAO) of holders of the MNGO token.

Mango Labs alleged that Schneider and a co-defendant purchased hundreds of millions of MNGO tokens, and then, without disclosing such purchase, introduced and voted for a governance proposal in which the Mango DAO would repurchase MNGO tokens at an allegedly inflated price. Mango Labs asserted claims for fraud, breach of fiduciary duty, unjust enrichment and violation of the Puerto Rico civil code. Crucially, prior to the filing of the lawsuit, Mango Labs introduced a Mango DAO governance proposal seeking assignment of the Mango DAO’s legal claims to Mango Labs, but such proposal failed; Mango Labs alleged that even though they lost the vote, Mango Labs “really” won because the vote was fraudulent.

Judge Gina R. Méndez-Miró, however, dismissed the case in its entirety for lack of standing, holding that Mango Labs could not sue on behalf of MNGO tokenholders. Importantly, the Court rejected Mango Labs’ argument that tokenholders could confer standing through a vote or assignment.

Specifically, the Court explained that it “rejects [Mango Labs’s] action of soliciting MNGO tokenholders to grant Mango Labs, LLC with the authority to bring a federal lawsuit on their behalf. Foremost, standing is not an authority that can be conferred between private parties: It has long been settled that standing may be acquired—only and exclusively—by fulfilling Article III requirements or through a Congressional grant of standing via federal statute.” The Court added that Mango Labs “may not acquire standing through a vote of MNGO tokenholders. Meaning, tokenholders cannot assign their standing to a party that otherwise would lack standing.”

The Court also found that Mango Labs could not bring a derivative action on behalf of the Mango DAO because Mango Labs: 1) did not sufficiently allege that it was a MNGO tokenholder; 2) failed to plead whether a demand was made upon the Mango DAO “administrators”; and 3) failed to plead with particularly why such a demand would have been futile.

The Court’s order principally addressed the motion to dismiss by Schneider’s co-defendant, but the subsequent judgment dismissing the case as to all defendants made clear that the court’s reasoning applied equally to Schneider.

This dismissal is a decisive outcome for Schneider and his co-defendant. By finding Mango Labs lacked standing at the threshold, the Court underscored the strict limits of standing in cases involving decentralized organizations and digital assets.

The Morrison Cohen team representing Schneider is led by Jason Gottlieb, Michael Mix and Will Roth.