Sandoval v. Uphold HQ Inc.
- Laura Swain
- 1:21-cv-07579
- U.S. District Court · Southern District of New York
- 19
In Sandoval v. Uphold, Judge Swain dismissed the customers’ claims with prejudice because their amended complaint still did not state legally sufficient claims.
The ruling ended the claims brought by Addison Sandoval, Lionel Ducote, Nicholas King, and Richard Neal, as well as the proposed class claims against Uphold HQ Inc. The court entered judgment for Uphold and closed the case.
What happened
Sandoval v. Uphold HQ Inc. was a proposed class action by four customers who said Uphold misled them into investing in the Earn cryptocurrency product, which ultimately lost its value. They sued under New York’s consumer-protection law and for common-law fraud.
Uphold asked the court to dismiss the amended complaint. The court found that the customers had not alleged enough facts showing that Uphold’s statements were misleading to a reasonable consumer, that its warnings about Cred were inadequate, or that Uphold knew enough about Cred’s financial condition to be responsible for concealing it. The fraud claim also failed because it required stronger allegations than the consumer-protection claim.
Judge Laura Taylor Swain granted Uphold’s motion to dismiss with prejudice, entered judgment for Uphold, and directed the Clerk of Court to close the case.
The detailed version
- Sandoval v. Uphold HQ Inc. · No. 1:21-cv-07579
- Laura Swain
- May 1, 2025
Background
Addison Sandoval, Lionel Ducote, Nicholas King, and Richard Neal brought this proposed consumer class action individually and on behalf of similarly situated people. They alleged that Uphold HQ Inc. used misleading marketing to encourage customers to invest in its Earn product, which was offered through a separate company, Cred Inc. Cred later entered Chapter 11 bankruptcy, and customers could no longer access their Earn balances.
The Second Amended Complaint asserted two claims: deceptive business practices under New York General Business Law § 349 and common-law fraud. The plaintiffs alleged that Uphold described Earn as operating like a traditional banking product and marketed it as safe, secured, fully hedged, and capable of producing high returns. They also alleged that Uphold knew, or should have known, about risks in Cred’s business and failed to disclose them.
Uphold moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint alleges enough facts to support a legally plausible claim. A judge had previously dismissed the First Amended Complaint but allowed the plaintiffs to amend it. After the plaintiffs filed the Second Amended Complaint, the case was transferred to Judge Swain.
Count I: New York General Business Law § 349
The court held that the Second Amended Complaint still did not adequately allege a deceptive practice. It identified five principal problems:
- The plaintiffs did not add facts showing that Earn customers could not receive the advertised interest rates or that Earn never paid those rates.
- The allegation that Earn functioned like a traditional banking product did not adequately explain why a reasonable consumer would understand that comparison as a guarantee of investment safety. The court treated broad descriptions such as “safe investment” as opinion or promotional language rather than concrete factual misrepresentations. The court noted that “fully hedged” could be an objectively verifiable statement, but the plaintiffs did not allege where, when, how, or to whom Uphold made that statement.
- The plaintiffs did not adequately explain why Uphold’s disclaimer failed to make clear that customers were leaving Uphold’s site and dealing with a third-party product offered solely by Cred. The court declined to reconsider its earlier ruling on that issue.
- The plaintiffs did not provide enough information about the materials, disclosures, and agreements that customers received before investing. The court found their assertion that Cred provided no documents or disclosures implausible because the Examiner’s Report, which the complaint incorporated, referred to CredEarn loan agreements containing repayment and yield terms.
- The plaintiffs did not plausibly allege that Uphold knew about Cred’s true financial condition before October
- The court found that allegations about Uphold’s marketing role, its custodial-wallet role, and its relationship with Cred did not establish superior knowledge. It also held that the complaint did not adequately show that knowledge held by Cred’s chief executive, who also served on Uphold’s board, could be attributed to Uphold.
The court therefore granted Uphold’s motion to dismiss Count I.
Count II: Common-Law Fraud and Fraudulent Concealment
The court held that the fraud and fraudulent-concealment claim also failed. Common-law fraud requires more than a New York General Business Law § 349 claim. Because the plaintiffs had not adequately alleged misleading statements or omissions for purposes of Count I, they also had not met the more demanding pleading requirements for Count II. The court therefore granted Uphold’s motion to dismiss Count II.
Disposition
The court granted Uphold’s motion to dismiss with prejudice. It directed the Clerk of Court to enter judgment in favor of Uphold and close the case. The decision was a Rule 12(b)(6) pleading ruling; the court determined that the complaint did not adequately state the claims rather than conducting a trial on whether the alleged deception occurred.
Read the full 19-page opinion on CourtListener, the free public archive maintained by the Free Law Project.