Suski v. Coinbase Global, Inc.

Background

David Suski, Jaimee Martin, Jonas Calsbeek, and Thomas Maher filed a proposed class action on behalf of themselves and people who opted into Coinbase’s $1.2 million Dogecoin sweepstakes and bought or sold at least $100 in Dogecoin on Coinbase during the specified June 2021 period. They alleged violations of California’s lottery law, California’s Unfair Competition Law, the False Advertising Law, and the Consumers Legal Remedy Act.

The plaintiffs had Coinbase accounts and had agreed to Coinbase user agreements containing arbitration provisions. They later agreed to the sweepstakes’ Official Rules, which stated that California state and federal courts would have exclusive jurisdiction over disputes concerning the promotion. The Official Rules also provided two entry methods: trading at least $100 in Dogecoin or mailing an index card without making a purchase.

Coinbase moved to compel arbitration or, alternatively, to dismiss the claims for failure to state a claim. The court also granted the plaintiffs’ request for judicial notice under Federal Rule of Evidence 201.

Arbitration

The court denied Coinbase’s motion to compel arbitration. It determined that the dispute was not about whether the plaintiffs’ claims fell within the general scope of the user-agreement arbitration provisions. Instead, the issue was whether the later sweepstakes contract superseded those provisions.

The court held that it—not an arbitrator—would decide which contract governed because the user agreements did not clearly and unmistakably assign that contract-conflict question to an arbitrator. The arbitration provision and the sweepstakes rules’ exclusive-court provision were both broad, mandatory, and inconsistent. Applying contract principles, the court held that the later sweepstakes rules superseded the earlier arbitration provision to the extent of the conflict.

Motion to Dismiss

A motion under Federal Rule of Civil Procedure 12(b)(6) tests whether the complaint alleges enough facts to state a legally plausible claim. The court generally accepts material allegations as true and views them in the light most favorable to the nonmoving party.

The court granted Coinbase’s motion to dismiss the plaintiffs’ first claim in full. That claim alleged a violation of California’s Unfair Competition Law based on the theory that the sweepstakes violated California Penal Code § 320, which prohibits illegal lotteries. The court also dismissed the second claim and sixth claim to the extent they were based on the alleged violation of Penal Code § 320.

The court reasoned that an illegal lottery requires chance, consideration, and a prize. Although the plaintiffs alleged that Coinbase’s advertising directed participants toward making a $100 Dogecoin trade, the sweepstakes rules allowed entry by mail without a purchase. The court held that the plaintiffs could not allege a violation of Penal Code § 320 based only on their lack of awareness of the free entry method, particularly because California penal statutes are strictly construed.

The court granted the plaintiffs leave to amend to pursue a theory they had advanced at oral argument but had acknowledged was not expressly pleaded in the Second Amended Complaint.

The court denied Coinbase’s motion to dismiss the remainder of the plaintiffs’ second through seventh claims. It found that the advertising materials could have led a reasonable consumer to believe that buying or selling Dogecoin was required to participate. The court also found that the statements about no purchase being necessary could have been ambiguous when viewed alongside the repeated directions to buy or sell Dogecoin, and that the alleged disclosures may not have been clear and conspicuous as required by California law.

Disposition

Judge Sallie Kim denied Coinbase’s motion to compel arbitration and granted in part and denied in part Coinbase’s alternative motion to dismiss for failure to state a claim. The court granted, with leave to amend, the motion to dismiss the first claim in full and the second and sixth claims to the extent they were premised on California Penal Code § 320. The court denied the motion to dismiss the remaining claims. The court set February 1, 2022, as the deadline for any amended complaint.