Thread by @cryptonesy

The @AzukiOfficial License inexplicably contains NO Mandatory Arbitration clause and selects pro-consumer CALIFORNIA as Governing Law 😱.

#Azuki Holders should therefore file a Consumer Fraud Class Action against @ChiruLabs to recover their losses immediately.

Here's why 👇🧵

@AzukiOfficial @ChiruLabs Before diving into how the @AzukiOfficial License leaves @ChiruLabs & @ZAGABOND ruinously exposed to #Azuki Holders for potentially untold $$ liability under multiple CA fraud statutes, lets first define each of the capitalized terms above so we're all on the same page.

@AzukiOfficial @ChiruLabs @ZAGABOND (🚨 Oh, and btw, this is NOT legal advice—and I'm not a litigator so I can't/won't represent you—it’s merely a hope that some CA trial lawyers read this 🧵 and consider representing the #Azuki Holders as a Class, the importance of which I explain for all below).

@AzukiOfficial @ChiruLabs @ZAGABOND 1/ First, what's the "@AzukiOfficial License”? 📃

And why should this matter to defrauded #Azuki Holders? 🤷

@AzukiOfficial @ChiruLabs @ZAGABOND 2/ A "License"—or “terms & conditions” ("T&C")—is a type of contract that governs the relationship between a seller and a prospective buyer 🤝 and provides the terms on which a seller agrees to sell its goods/services to those buyers.

@AzukiOfficial @ChiruLabs @ZAGABOND 3/ The "@AzukiOfficial License," therefore, is the T&Cs that governs the relationship between @ChiruLabs (the founders of #Azuki, including @ZAGABOND) and each Azuki #NFT holder, providing the terms on which @ChiruLabs agreed to sell its NFTs to each prospective NFT buyer.

@AzukiOfficial @ChiruLabs @ZAGABOND 4/ For those interested: here 👇 is the @AzukiOfficial License ⛩, pulled directly from the Azuki website: azuki.com/license

@AzukiOfficial @ChiruLabs @ZAGABOND 5/ Even if a buyer never reads 🙈 the seller's License—or doesn't even know it exists—the law nevertheless treats the buyer as having read and consented to its terms 📜 by virtue of buying the seller's goods.

In this sense, a License/T&C is just a one-sided sales contract. 🫱

@AzukiOfficial @ChiruLabs @ZAGABOND 6/ And so, even if no #Azuki buyers read the @AzukiOfficial License, by virtue of purchasing an Azuki #NFT, the law will treat every Azuki NFT purchaser as having consented 💯 to the terms contained in this one-sided sales contract.

@AzukiOfficial @ChiruLabs @ZAGABOND 7/ What this means, in effect, is that if any #Azuki buyers attempt to sue @ChiruLabs for damages on account of @ZAGABOND's fraud, the rules governing whether or not these buyers can even sue are dictated in the @AzukiOfficial License.

So the License is pretty important.

@AzukiOfficial @ChiruLabs @ZAGABOND 8/ As one might expect, this is a great deal 👌 for online sellers: unlike IRL sellers (e.g., your local mall) who don't hand out T&Cs at the door, online sellers can shield 🛡️ their liability to buyers simply by including these seller-friendly contracts on their websites.

@AzukiOfficial @ChiruLabs @ZAGABOND 9/ Now, these one-sided sales contracts are structured to overwhelmingly favor sellers over buyers, since sellers are the ones who draft them. ✍️

Sellers achieve this by including certain terms in their Licenses/T&Cs that restrict a buyer's rights & limit the seller's liability.

@AzukiOfficial @ChiruLabs @ZAGABOND 10/ Most consumers (myself included) blindly accept these terms every day, either because they need the seller's product or bc they just didn't know.

But should they even care? After all, who wants to negotiate a contract for every routine online purchase? 📑🗄

@AzukiOfficial @ChiruLabs @ZAGABOND 11/ And for the most part, the system works fine: given that 99% of online transactions don't end in disputes, why not let sellers' protect themselves in however manner they want? It doesn't matter most of the time.

Until it does matter. And when that happens, it REALLY matters.

@AzukiOfficial @ChiruLabs @ZAGABOND 12/ For those unfortunate buyers who fall victim to fraud (or worse) by a seller, all of a sudden these online T&Cs/Licenses become the most important thing in a buyer’s life.

@AzukiOfficial @ChiruLabs @ZAGABOND 13/ As is too often the case these days, however, by the time a buyer discovers they've been harmed (either financially or worse), it's too late—the game is already lost, because the buyer unknowingly signed away his rights the moment $ was exchanged.🪤

@AzukiOfficial @ChiruLabs @ZAGABOND 14/ #NFT sellers are no different than any other online sellers in this regard: most attach Licenses/T&Cs to the bottoms of their websites, jam packed with terms that effectively render the seller immune from liability against aggrieved buyers should a dispute arise.

@AzukiOfficial @ChiruLabs @ZAGABOND 15/ And so, does the @AzukiOfficial License contain any terms that could effectively prohibit #Azuki buyers from holding @ChiruLabs/@ZAGABOND accountable for apparent fraud?

The rest of this thread is dedicated to unpacking this question.

And the answer might surprise you. 🤯

@AzukiOfficial @ChiruLabs @ZAGABOND 16/ Of the many seller-friendly terms typically included in T&Cs/Licenses 📄, perhaps the most consequential is what's called a "Mandatory Arbitration" clause.

@AzukiOfficial @ChiruLabs @ZAGABOND 17/ It is also, incidentally, the primary mechanism by which sellers shield 🛡️ themselves from liability to buyers—liability for everything from outright fraud, to gross negligence, to defective/dangerous products, to false advertising, to even wrongful death—you name it.

@AzukiOfficial @ChiruLabs @ZAGABOND 18/ So what is a "Mandatory Arbitration" clause, and why is it so effective at limiting sellers’ liability against buyers? 🤔

@AzukiOfficial @ChiruLabs @ZAGABOND 19/ Within nearly every License/T&C today you'll find a Mandatory Arbitration clause, which is a contract provision that forces buyers to "arbitrate" disputes with sellers rather than "litigate" those disputes in a court of law.

@AzukiOfficial @ChiruLabs @ZAGABOND 20/ And the difference between "litigation" vs. "arbitration" cannot be overstated:

👨‍⚖️ Litigation takes place in front of a judge within a court of law 🏛, governed by rules of civil procedure & regulated under constitutional safeguards, incl. due process and equal protection.

@AzukiOfficial @ChiruLabs @ZAGABOND 21/ 👤 Arbitration, by contrast, takes place in secret within a private tribunal 🏢, not a court of law, decided by a for-profit arbitrator (who doesn't need to be a judge—or even a lawyer) and who's typically hand-picked and paid by the seller.

Think: "Corporate Court".🦘

@AzukiOfficial @ChiruLabs @ZAGABOND 22/ It's well known that buyers typically have far fewer rights in arbitration than in a court of law, including less favorable procedural rules (statutes of limitations, discovery, burdens of proof, etc.) and without a jury of your peers 👨‍👨‍👦‍👦👨‍👨‍👦‍👦👨‍👨‍👦‍👦 deciding the facts of the case.

@AzukiOfficial @ChiruLabs @ZAGABOND 23/ If you disagree with a judge's decision in court, you can appeal that decision to a higher court. ⤴️

If you disagree with an arbitrator's decision, you're done.⛔️

That's bc courts are generally prohibited from reviewing arbitration decisions—no matter how wrongly decided.

@AzukiOfficial @ChiruLabs @ZAGABOND 24/ And so, if you've been defrauded by a seller whose relationship to you is governed by a License that includes a Mandatory Arbitration clause, you've effectively agreed to waive your day in court and instead plead your case in secret to an arbitrator handpicked by the seller.

@AzukiOfficial @ChiruLabs @ZAGABOND 25/ Needless to say: this is obviously good for sellers and bad for buyers.

But it gets worse:

Not only does Mandatory Arbitration screw buyers in all the ways described above, but it also PROHIBITS 🚫 all screwed buyers from suing the seller together via a "Class Action".

@AzukiOfficial @ChiruLabs @ZAGABOND 26/ A Class Action is when one or more injured parties bring a lawsuit against a seller on behalf of a larger group who suffered a similar harm.

Because the suit is on behalf of the entire Class, the damages are greater and the victims can efficiently pool their resources.🤝

@AzukiOfficial @ChiruLabs @ZAGABOND 27/ Whenever a seller commits widespread consumer fraud, as @ZAGABOND all but admitted to doing, often the most appropriate means of holding that seller accountable and providing recourse to the victims of the fraud is through a "Consumer Fraud Class Action".󠀾

@AzukiOfficial @ChiruLabs @ZAGABOND 28/ In fact, sometimes a Consumer Fraud Class Action is the ONLY available means by which buyers can hold a fraudulent seller accountable—especially where the costs to initiate a lawsuit & fully litigate the matter exceed the potential damages incurred by each defrauded buyer.

@AzukiOfficial @ChiruLabs @ZAGABOND 29/ For e.g., let's assume every #Azuki holder lost $10k in the value of their #NFTs as a result of @ChiruLabs & @ZAGABOND's fraud. If it costs each person individually $12k to hire a lawyer to sue, then no one is going to sue.

And if this happens, the fraud goes unpunished🥂.

@AzukiOfficial @ChiruLabs @ZAGABOND 30/ In this sense, Consumer Fraud Class Actions offer not only a powerful device to recover 💰 for defrauded buyers and disgorge the 💰 pocketed by defrauding sellers—they also serve as a strong prophylaxis for deterring future wrongdoing.

@AzukiOfficial @ChiruLabs @ZAGABOND 31/ And by deterring future wrongdoing, Consumer Fraud Class Actions serve to protect innocent consumers 👶🏻 👵🏻 from the next fraud—the exact kind of deterrent sorely needed in the NFT market right now.

@AzukiOfficial @ChiruLabs @ZAGABOND 32/ When the news initially broke that @ZAGABOND 🥷🏿 was behind three rug pulls over the last year, many reached out to me asking what legal recourse, if any, did the #Azuki holders have to hold @ChiruLabs accountable for fraudulently concealing material facts about @ZAGABOND?

@AzukiOfficial @ChiruLabs @ZAGABOND 33/ And, admittedly, at first I thought there was very little that #Azuki holders could do—not because @ZAGABOND didn't violate the law, but rather because I assumed the @AzukiOfficial License had, like nearly every other NFT project, a

@AzukiOfficial @ChiruLabs @ZAGABOND 34/ I figured that:

(1) because there's likely a Mandatory Arbitration clause in the @AzukiOfficial License, the #Azuki holders can't form an #AzukiClass and file a Class Action and will therefore be forced to individually sue @ChiruLabs alone in a secret Arbitration tribunal;

@AzukiOfficial @ChiruLabs @ZAGABOND 35/ (2) Aggrieved consumers fare poorly in Arbitration tribunals generally, let alone against a well-capitalized, VC-backed company like @ChiruLabs—which, incidentally, oversaw a whopping ~300,000 ETH in NFT sales (f

@AzukiOfficial @ChiruLabs @ZAGABOND 36/ (3) Without the availability of a Class Action, the costs of arbitrating a dispute for your avg. Azuki holder against @ChiruLabs would likely exceed the damage awards—especially because most Licenses cap seller liability at de minimis amounts and prohibit punitive damages.

@AzukiOfficial @ChiruLabs @ZAGABOND 37/ But then I reviewed the #AzukiOfficial License.

And, well, I was wrong!

As it turns out—to my utterly stupefied delight—the @AzukiOfficial License contains:

NO MANDATORY ARBITRATION CLAUSE.

None.

@AzukiOfficial @ChiruLabs @ZAGABOND 38/ Perhaps I shouldn’t have been surprised that the very same giga brain masterminds behind Zunks, Phunks and Tendies failed to sufficiently judgment-proof their own fraud (would love to be a fly on the wall when they read this 🧵 though). 🤣

https://twitter.com/Punk_2070/status/1523805278105309188?s=20&t=An4MfPwlhf3AOJ5ZKSA5EQ

@AzukiOfficial @ChiruLabs @ZAGABOND 39/ In any event, by failing to incl. a Mandatory Arbitration clause in their License, @ChiruLabs and @ZAGABOND appear to have left themselves RUINOUSLY exposed to a level of legal liability few other #NFT projects (including many rugs) have yet faced—and it's all self-inflicted.

@AzukiOfficial @ChiruLabs @ZAGABOND 40/ Without a Mandatory Arbitration clause, all disputes between @ChiruLabs and #Azuki buyers will be litigated in a court of law—not arbitrated in a private tribunal—which in turn means that #Azuki buyers are not barred from pursuing a Consumer Fraud Class Action.

#AzukiClass

@AzukiOfficial @ChiruLabs @ZAGABOND 41/ And with the availability of Consumer Fraud Class Action, an #AzukiClass can hire top legal counsel to represent them as a Class against what would otherwise be a far better capitalized and well-represented opponent in @ChiruLabs.

@AzukiOfficial @ChiruLabs @ZAGABOND 42/ The absence of a Mandatory Arbitration clause in the License could allow a once disorganized mass of degen #NFT holders who were unlikely to sue anyone individually to form an #AzukiClass, hire top counsel and sue for compensatory & punitive damages.

@AzukiOfficial @ChiruLabs @ZAGABOND 43/ By the same token, if the #Azuki holders don't form an #AzukiClass and fail to capitalize on the shockingly stupid oversights of a clearly inept team, not only will they never recover millions from @ChiruLabs' fraud—they will allow their unjust enrichment to continue. 😡

@AzukiOfficial @ChiruLabs @ZAGABOND 44/ And I don’t know who needs to hear this, but if the prospect of recovering $ that was allegedly swindled from you by the creator of Tendies isn't enough to galvanize the #Azuki community into action, then consider this:

@AzukiOfficial @ChiruLabs @ZAGABOND 45/ By failing to pursue a Class Action against those who are now the face of everything wrong w NFTs—you are not only screwing yourselves but screwing the entire #NFTCommunity: for rug pulls that go unpunished will inevitably breed more rugs pulls, more often. 🥷🏿🥷🏿🥷🏿🥷🏿🥷

@AzukiOfficial @ChiruLabs @ZAGABOND 46/ To deter future rug pulls, we can't just wait for some government regulator to step in and "clean up" the #NFT market—bc they'll regulate the entire NFT market out of existence.

Class Actions could play an important private form of regulation here.

@AzukiOfficial @ChiruLabs @ZAGABOND 47/ But we're not done with the full analysis—there's more embarrassing incompetence to be told on @ChiruLabs & @ZAGABOND’s path to total self-immolation 🔥 you’re going to want to read.

@AzukiOfficial @ChiruLabs @ZAGABOND 48/ In addition to stacking the deck with Mandatory Arbitration clauses, another thing sellers often include in their Licenses/T&Cs are provisions that pre-select the "Governing Law" and "Forum," allowing the seller to hand pick where to be sued and under which laws.

@AzukiOfficial @ChiruLabs @ZAGABOND 49/ And because each state has different laws, by pre-selecting the laws governing the buyer-seller relationship, the seller can pick the most favorable laws for sellers.

Same thing with Forum: sellers will pick the best court for sellers to defend suits against customers.

@AzukiOfficial @ChiruLabs @ZAGABOND 50/ Governing Law provisions are actually very important, because even if #Azuki holders are able to form an #AzukiClass—which is not always an easy task—if the Class is forced to litigate against a backdrop of weak consumer protection laws, they won’t get very far in court.

@AzukiOfficial @ChiruLabs @ZAGABOND 51/ Incidentally, not every state is favorable to consumer protection and Class Action lawsuits—in fact, many are downright hostile to them.

Shocking, I know, right? 😑

There are, however, a few states that have very strong Consumer Fraud Class Action statutes. 💪

@AzukiOfficial @ChiruLabs @ZAGABOND 52/ Indeed, among the states that have the strongest laws for sanctioning perpetrators of consumer fraud and allowing Class Action suits, the one that stands above all others is:

California 🏆🥇

@AzukiOfficial @ChiruLabs @ZAGABOND 53/ And while you might be forgiven for excusing @ChiruLabs on the truly dire Mandatory Arbitration oversight (even though its arguably the most important clause available to shield @ZAGABOND's team from the consequences of his fraud, but okay),

@AzukiOfficial @ChiruLabs @ZAGABOND 54/ there's absolutely no reasonable explanation—none—for @ChiruLabs deliberately including a provision in the @AzukiOfficial License that specifically selects CALIFORNIA—the state most inhospitable to those accused of defrauding consumers—as its Governing Law.

But here it is:

@AzukiOfficial @ChiruLabs @ZAGABOND 55/ Not only that, but the @AzukiOfficial License also contains a Forum Selection clause that requires all lawsuits against @ChiruLabs take place in—drumroll—Los Angeles, the place with the highest concentration of trial lawyers who routinely bring Consumer Fraud Class Actions.

@AzukiOfficial @ChiruLabs @ZAGABOND 56/ See 👇 for top "judicial hellholes" for defendants (great pick for Azuki victims, not so much for @ChiruLabs):
judicialhellholes.org

@AzukiOfficial @ChiruLabs @ZAGABOND 57/ And so, in sum: the Forum where the founders of #Azuki—a team led by serial rugger who likely made millions on perpetrating several frauds—not only chose to get sued for fraud, but REQUIRE Azuki holders to sue them for fraud, is the forum most hostile to consumer fraud.🤔

@AzukiOfficial @ChiruLabs @ZAGABOND 58/ Including a Forum Selection clause that requires all disputes to be litigated in the place with the highest concentration of battle-tested, cutthroat Class Action trial lawyers in America—the most litigious country on earth—is indescribably stupid.🤦

@AzukiOfficial @ChiruLabs @ZAGABOND 59/ Now, the best part about being *forced* to sue in California is that an #AzukiClass can sue @ChiruLabs under California's Consumers Legal Remedies Act ("CLRA"), which has been, for over 37 years, the most far-reaching consumer protection statute in the United States.

@AzukiOfficial @ChiruLabs @ZAGABOND 60/ The CLRA prohibits “unfair methods of competition” and “unfair or deceptive acts or practices” in connection with “a transaction intended to result or that results in the sale or lease of goods or services.”

Sounds pretty on point already.

(Btw, NFTs are "goods").

@AzukiOfficial @ChiruLabs @ZAGABOND 61/ And unlike many consumer protection laws in the US, the CA legislature intended that CA courts construe the law liberally to “protect consumers against unfair and deceptive business practices and provide efficient and economical procedures to secure such protection.”

@AzukiOfficial @ChiruLabs @ZAGABOND 62/ Among the many “unfair methods of competition” and “deceptive acts or practices” identified under this statute, the CLRA prohibits:

(1) Misrepresenting the source of goods or services; and

(2) Misrepresenting the affiliation, connection, or association with another.

@AzukiOfficial @ChiruLabs @ZAGABOND 63/ And notably, the CLRA applies to both a seller's actions AND material omissions, and so the omissions by @ChiruLabs & @ZAGABOND about Zagabond's past rug pulls—which crashed the price of @AzukiOfficial by 68% immediately when revealed—seem highly material.

@AzukiOfficial @ChiruLabs @ZAGABOND 64/ Now, I'm not going to discuss all the facts surrounding the @ZAGABOND rug-pulls and how they seem to meet the standards outlined above, because I figure everyone already knows the facts, as they've been widely reported.

@AzukiOfficial @ChiruLabs @ZAGABOND 65/ But for those who don't, I suggest you check out @rugpullfinder's succinct analysis here:

https://twitter.com/rugpullfinder/status/1524465653738053632?s=20&t=8yul82f3T4uaod60s2d1ug

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder 66/ And please also check out @NFTethics take on @ZAGABOND's background and history of rug pulls:

https://twitter.com/NFTethics/status/1526534174357733377?s=20&t=8yul82f3T4uaod60s2d1ug

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder @NFTethics 67/ Finally, if an #AzukiClass is formed and sues under CLRA, the Class will not only be eligible to receive "compensatory" damages—or compensation to make the victims whole for the fraud—but also "punitive" damages.

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder @NFTethics 68/ Punitive damages are damages awarded in order to punish the defendant for outrageous conduct and/or to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit—typically much more $ than mere compensation.

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder @NFTethics 69/ And this is why it's so important for the #Azuki Holders to form an #AzukiClass and sue @ChiruLabs: as I've said over and over throughout this thread, it's not just about making each defrauded NFT holder whole, although that's certainly important.

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder @NFTethics 70/ It's about punishing a serial rug-puller publicly, so that this shit never happens again; disgorging every single cent of profit he and @ChiruLabs, who are complicit in his fraud, have made; and scaring all others like them from ever trafficking in these scams ever again.

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder @NFTethics 71/ In short: it's about bringing respectability back to the NFT market by letting the world know that we—the NFT holders—do not and will not stand for this any longer.

@AzukiOfficial @ChiruLabs @ZAGABOND @rugpullfinder @NFTethics 72/ We don't need the government to come in and regulate the NFT market, because we—the #NFTCommunity, the ones with most at stake—are going to regulate it ourselves.

And it all starts with an #AzukiClass.

Thank you @Pauly0x!