United States Court of Appeals For the First Circuit

No. 21-1618

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff, Appellee,

v.

LBRY, INC.,

Defendant,

LBRY FOUNDATION INC.,

Movant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

[Hon. Paul J. Barbadoro, U.S. District Judge]

Before

Lynch, Thompson, and Gelpí, Circuit Judges.

Cory C. Kirchert, with whom Adriaen M. Morse, Jr., Simon R. Brown, Arnall Golden Gregory LLP, and Preti Flaherty Beliveau & Pachios, PLLC were on brief, for appellant. Paul G. Alvarez, Senior Litigation Counsel, with whom Dan M. Berkovitz, General Counsel, Michael A. Conley, Solicitor, and Dominick V. Freda, Assistant General Counsel, were on brief, for appellee. February 17, 2022 LYNCH, Circuit Judge. The question presented in this

appeal is whether the district court's denial of intervention as

of right to LBRY Foundation Inc. ("Foundation") in a Securities

and Exchange Commission ("SEC") civil enforcement action against

defendant LBRY, Inc. (not Foundation) was an abuse of discretion.

The SEC charges that LBRY failed to register as investment

contracts under Section 5 of the Securities Act of 1933

("Securities Act"), 15 U.S.C. § 77e, an offering of digital assets

called LBRY Credits ("LBC").

Foundation, whose assets consist of grants of LBC from

defendant LBRY, moved to intervene. It wishes to contest the SEC's

enforcement action on what it asserts to be a different ground

than LBRY has proposed. Both the SEC and LBRY opposed Foundation's

attempt to intervene. On July 29, 2021, the district court denied

the motion to intervene.

We affirm because there plainly was no abuse of

discretion.

I.

A. Factual Background

In July 2016, the defendant LBRY, a New Hampshire-based

company, launched a blockchain-enabled network,1 called the LBRY

1 A blockchain is an electronic distributed database "shared among the nodes of a computer network." See A. Hayes, Blockchain Explained, Investopedia (updated Jan. 20, 2022), https://www.investopedia.com/terms/b/blockchain.asp/.

- 3 - Protocol, to create a public and intermediary-free means of

distributing and purchasing digital content. Any individual may

publish digital content on the LBRY Protocol, and other users may

browse the LBRY Protocol and purchase the published digital content

using LBC, digital assets created by LBRY.

LBRY owned 400 million LBC in reserve at the network's

launch. Since then, LBRY has offered and sold LBC to financially

support its operations and to build its network. LBRY did not

register its offers or sales of LBC and did not file a registration

statement under the Securities Act.

In October 2019, LBRY created Foundation, a non-profit

corporation which "works to promote the growth, development, and

adoption of the LBRY Protocol in a bottom-up, community-driven

fashion." LBRY granted Foundation five million LBC to fulfill its

corporate and charitable objectives of promoting free speech,

publishing, and education through the LBRY Protocol. Foundation

in turn offers LBC in exchange for projects submitted by users

that contribute content and applications to the LBRY Protocol.

Foundation's only assets are LBC.

B. Procedural History

LBRY answered the SEC's enforcement complaint, stating

that it could not have violated Section 5 because LBC are not

securities. LBRY challenges the SEC's assertion that LBC are

- 4 - investment contracts2 because "LBRY has never offered and sold LBC

as an investment, and holders of LBC have no claim to the assets

or profits of LBRY and have no ownership interest in LBRY."

In July 2021, Foundation filed a motion to intervene as

of right and by permission. See Fed. R. Civ. P. 24(a)(2),

(b)(1)(B). It argued that it wished to focus instead on

challenging the SEC's definition of "enterprise" and "to challenge

[the] SEC's programmatic claim that a network, such as the LBRY

Protocol, can even be an 'enterprise' . . . under Howey and the

Securities Act." Foundation argued that because LBC do not satisfy

the enterprise element, they cannot be investment contracts. It

argued that LBRY and Foundation have "materially different

substantive defense strateg[ies]" and thus LBRY "cannot, and will

not, adequately represent [] Foundation's interests."

The SEC and LBRY opposed the motion. Each raised doubts

that Foundation has any protectable interest and argued that LBRY

provides adequate representation. They invoked the presumption

that LBRY adequately represents Foundation's interests and argued

that pursuit of a different litigation strategy is insufficient to

establish intervention as of right. On July 29, 2021, the district

2 In SEC v. W.J. Howey, Co., the Supreme Court held that the test for an investment contract under the Securities Act is whether the scheme "involves [(1)] an investment of money [(2)] in a common enterprise [(3)] with profits to come solely from the efforts of others."

(1946).

- 5 - court denied the motion to intervene "for the reasons set forth in

the SEC's response."

Foundation timely appealed.

II.

A. Standard of Review

We review a district court's denial of a motion to

intervene as of right for abuse of discretion.3 See Victims Rts.

L. Ctr. v. Rosenfelt,

(1st Cir. 2021); Int'l

Paper Co. v. Inhabitants of Town of Jay,

(1st

Cir. 1989). Within the abuse-of-discretion standard, "abstract

legal rulings are scrutinized de novo, factual findings are assayed

for clear error, and the degree of deference afforded to issues of

law application waxes or wanes depending on the particular

circumstances." T-Mobile Ne. LLC v. Town of Barnstable,

(1st Cir. 2020).

B. Intervention as of Right

Under Federal Rule of Civil Procedure 24(a)(2), "[o]n

timely motion, the court must permit anyone to intervene who":

claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.

3 In its opening brief, Foundation does not contest the district court's denial of its request for permissive intervention.

- 6 - To prevail on a motion to intervene as of right, a

proposed intervenor must demonstrate: "(1) the timeliness of

[its] motion; (2) a concrete interest in the pending action; (3) 'a

realistic threat' that resolution of the pending action will hinder

[its] ability to effectuate that interest; and (4) the absence of

adequate representation by any existing party." T-Mobile,

(quoting R & G Mortg. Corp. v. Fed. Home Loan Mortg.

Corp.,

(1st Cir. 2009)). A failure to satisfy any

one of these four requirements is sufficient grounds to deny a

request for intervention as of right.4 See Victim Rts. L. Ctr.,

; T-Mobile,

.

When a proposed "intervenor's objective aligns

seamlessly with that of an existing party . . . a rebuttable

presumption of adequate representation attaches." T-Mobile,

(citing Students for Fair Admissions, Inc. v. President

& Fellows of Harvard Coll.,

(1st Cir. 2015)).

Where the presumption of adequate representation applies, "the

applicants' burden is a heavy one, since adequacy is primarily a

4 Because we affirm solely on the ground that LBRY adequately represents whatever interests Foundation may have in the underlying civil enforcement action, we do not reach the question of whether Foundation has shown that it has a "concrete interest" sufficient to warrant intervention under Rule 24(a). See Victim Rts. L. Ctr.,

, 561 n.5. We also do not address the SEC's argument that intervention would violate separation-of-powers principles as it chose not to bring the enforcement action against Foundation.

- 7 - fact-sensitive judgment call and the standard of review is

deferential." Daggett v. Comm'n on Governmental Ethics & Election

Pracs.,

(1st Cir. 1999). Here, the

presumption of adequacy applies. Indeed, Foundation concedes that

it "shares LBRY's litigation objective -- to defeat the SEC's claim

-- and attacks the same and only contestable element of the SEC's

claim": that LBC are not securities.

Foundation attempts to overcome this presumption by

arguing that LBRY's and Foundation's "arguments and approaches are

different" and pointing to the "historic failure of LBRY's approach

in prior SEC enforcement actions." According to Foundation, LBRY

implicitly accepts the SEC's definition of "enterprise."

Foundation focuses on its desire to present a challenge to the

SEC's definition of "enterprise" as inconsistent with the Supreme

Court's decision in SEC v. W.J. Howey, Co.,

(1946),

and the Securities Act. LBRY states that this is merely a

variation of the argument it intends to present when there is full

briefing in the district court on the matter.

A proposed intervenor's desire to present an additional

argument or a variation on an argument does not establish

inadequate representation.5 See Daggett,

; see also

5 In some cases, "a refusal to present obvious arguments could be so extreme as to justify a finding that representation by the existing party was inadequate." Daggett,

. That is not the case here. Foundation has not demonstrated that

- 8 - Victim Rts. L. Ctr.,

(collecting cases rejecting

proposed intervenors' argument of inadequate representation for

failure to make additional arguments); T-Mobile,

-

40. Nor does a difference in litigation tactics support a finding

of inadequate representation. See Butler, Fitzgerald & Potter v.

Sequa Corp.,

(2d Cir. 2001) ("If disagreement

with an existing party over trial strategy qualified as inadequate

representation, the requirement of Rule 24 would have no

meaning."); see also C.A. Wright & A.R. Miller, Federal Practice and

Procedure § 1909 (3d ed., Apr. 2021 update) ("A mere difference of

opinion concerning the tactics with which the litigation should be

handled does not make inadequate the representation of those whose

interests are identical with that of an existing party or who are

formally represented in the lawsuit."). Indeed, in the increasingly

frequent SEC digital asset enforcement cases, courts have denied

motions to intervene from non-parties that intended to assert

alternative legal arguments. See, e.g., SEC v. Ripple Labs, Inc.,

No. 20 Civ. 10832,

, at *5-6 (S.D.N.Y. Oct. 4, 2021)

LBRY refuses or is incapable of raising Foundation's favored argument. LBRY's answer argued that it could not have violated Section 5 because LBC are not investment contracts, and thus not securities. The answer properly raises the legal argument Foundation wishes to present and leaves open the option for LBRY to raise Foundation's "enterprise" definition argument.

- 9 - (denying intervention motion but permitting intervenors to proceed

as amici).6

III.

Affirmed.

6 At the district court, Foundation argued that LBRY cannot adequately represent Foundation's interests because LBRY may seek settlement. Foundation has waived this argument on appeal. See Young v. Wells Fargo Bank, N.A.,

, 239- 40 (1st Cir. 2013) ("We have repeatedly held, 'with a regularity bordering on the monotonous,' that arguments not raised in an opening brief are waived." (quoting Waste Mgmt. Holdings, Inc. v. Mowbray,

(1st Cir. 2000))). We reject a claim of inadequate representation based on the possibility of settlement where "appellants' conjectures are tendered without either specificity or record support." T-Mobile,

. Here, Foundation has provided no evidence or support for the proposition that LBRY would seek settlement.

- 10 -