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Former Zerocoin employee files lawsuit against company in a case more human than crypto

Stephen D. Palley
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Disclaimer: These summaries are provided for educational purposes only by Nelson Rosario and Stephen Palley. They are not legal advice. These are our opinions only, aren’t authorized by any past, present or future client or employer. Also we might change our minds. We contain multitudes.

As always, Rosario summaries are “NMR” and Palley summaries are “SDP".

[related id=1] Liu v. The Zerocoin Electric Coin Company LLC; and Does 1 Through 50, Inclusive, Superior Court of California, San Francisco County, CGC-19–57–6321 (May 29, 2019) [SDP]

This new state court lawsuit involves a dispute over an alleged equity grant promised by Zerocoin to the Plaintiff. It’s yet another example of how protocols may be decentralized and cryptographic and disputive as all get out but the rubber meets the road in business over what are fundamentally simple contract disputes.

According to the Complaint — which I hasten to add contains unproven allegations and aren’t necessarily true — Plaintiff and Zerocoin entered into a contract back in August 2016 where Plaintiff would be a Senior Software Engineer. In connection with that, he was granted an option to purchase 12,000 “Units” of Stock pursuant to a stock incentive plan. This was later amended to grant him 15,000 units. Plaintiff says that he was also promised a share of a “Founders Reward” in proportion to his option grant. (It is unclear who the 50 John/Jane Does defendants are).

Two years later, on December 31, 2018, plaintiff says the company sent a “status update” to him saying that they hadn’t actually created a stock option plan and that no grants had actually been offered. He send a books and records request several days later asking for access to corporate information to “determine the status and valuation of [promised] units[.]” The company said nope. Things quickly got ugly and Plaintiff says the company basically told him to stop bugging them or they’d fire him. He resigned on May 28, 2019 citing as reasons (1) failure to get the options; (2) “intolerable working conditions” and (3) be threatened with termination unfairly.

The Complaint has seven, count ’em seven counts. First, breach of contract because plaintiff allegedly didn’t give his stock options. Second, “promissory fraud” which kind of repeats the contract claim but frames it as fraud (unclear why, if there’s an express written contract). Third and fourth, misrepresentation (negligent and intentional), also unclear why these are alleged if there’s a … written contract. Fifth, breach of fiduciary duty on the basis that Plaintiff was a “shareholder and/or member of Zerocoin” and had a right to review books and records and shouldn’t have had his equity rights diluted. (This particular allegation has a slightly throw it up on the wall feel to it, in this writer’s opinion but, hey, maybe it works in California). Sixth, “constructive discharge” or … I quit but you really fired me. This sort of claim is more typically seen in the age/gender/race discrimination context but it’s given a try here. And last but not least, count seven alleges deceptive trade practice under a California statute, to round things out.

Anyways, not much in this lawsuit directly germane to crypto, other than the fact it deals with a company in the space and is a reminder that business disputes involving this emerging technology still seem to wind up in old fashioned courts with old fashioned causes of action.

The Block is pleased to bring you expert cryptocurrency legal analysis courtesy of Stephen Palley (@stephendpalley) and Nelson M. Rosario (@nelsonmrosario). They summarize three cryptocurrency-related cases on a weekly basis and have given The Block permission to republish their commentary and analysis in full. Part III of this week's analysis, Crypto Caselaw Minute, is above.