Monday, January 30, 2023 | Back issues
Courthouse News Service Courthouse News Service

Man loses NFTs to cybercriminals, then loses in court

The economic loss doctrine bars negligence suits when the injury — in this case, the theft of Bored Ape Yacht Club NFTs — is purely economic.

LAS VEGAS (CN) — A Nevada man is not beating his chest in celebration after his non-fungible token (NFT) apes were stolen from an online platform and a federal judge on Thursday tossed his lawsuit over the theft.

NFTs are uniquely identifiable digital assets whose authenticity has been certified on a blockchain, the transparent and secure digital ledgers that support the creation of many forms of digital assets, including NFTs and cryptocurrencies.

Chief U.S. District Judge Miranda M. Du ruled that plaintiff Robert Armijo’s losses were “economic” and the economic loss doctrine bars Armijo’s negligence claim against defendant Ozone Networks, dba OpenSea, a company valued at $13.3 billion. It’s the largest NFT marketplace in the world and commands more than 97% of the emerging NFT market.

“The loss of plaintiff’s commercialization rights of his stolen NFTs is similarly a purely economic loss. While plaintiff is correct that injuries in tort law include nonphysical injuries such as ‘the invasion of any legally protected interest of another,’ the economic loss doctrine generally does not refer to such a broad definition of ‘injury,'" Du wrote.

Furthermore, Du ruled she lacks personal jurisdiction over defendant Yuga Labs, dba Bored Ape Yacht Club, the originator of the NFT apes which Armijo purchased. She granted Yuga’s motion to dismiss as well.

Armijo owned three Bored Ape Yacht Club (BAYC) NFTs that were stolen by an unknown cyberthief who used a link to a fake website on OpenSea.

Armijo claimed he attempted to contact OpenSea’s customer service on their Discord server to obtain help in locating his stolen NFTs. Armijo said he also “went to the BAYC Discord server and created a help ticket on BAYC’s customer service channel.” A BAYC employee responded and explained that “the only thing BAYC could do was reach out to OpenSea to try and expedite [plaintiff’s] help tickets," according to his complaint.

About two hours after the theft occurred, one of Armijo’s stolen NFTs was sold on OpenSea. About four hours after the sale, an OpenSea customer representative contacted Armijo “explaining that OpenSea would freeze the three BAYC NFTs that had been stolen from Armijo,” preventing them from being “bought or sold on OpenSea’s marketplace.”

However, this did not prevent the stolen NFTs from being purchased or traded on other NFT marketplaces. Armijo’s other two stolen NFTs were subsequently sold on LooksRare.

NFT marketplaces like OpenSea and LooksRare are virtual exchanges that allow digital collectors, to buy, sell, swap, and create NFTs. Similar to Amazon and eBay, which provide online marketplaces for traditional physical goods, NFT marketplaces provide an online platform for buyers and sellers to meet and exchange digital goods.

Armijo’s attorney, Emily Brinn Nuvan of Ray Quinney & Nebeker P.C. of Salt Lake City, said she was studying the ruling and would have to consult with her client before commenting.

Ozone's attorney April D. Youpee-Roll of Munger, Tolles & Olson LLP of San Francisco did not return a request for comment by press time.

Certain NFT projects have become so popular that their value has increased exponentially. Bored Ape NFTs are an exclusive collection of 10,000 original digital art images of apathetic-looking apes, each with their own unique characteristics and properties — varying fur types, clothing, accessories, facial expressions and more. Bored Ape NFTs are currently the most popular and one of the most expensive NFTs.

The safety programs on the buying and selling platforms do not include any mechanisms that protect consumers from less sophisticated scamming and phishing schemes that rob owners of their NFTs and allow the thieves to use OpenSea as an immediate marketplace to offload the stolen goods, Armijo claimed.

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.