Suski v. Coinbase Global, Inc.

Background

David Suski, Jaimee Martin, Jonas Calsbeek, and Thomas Maher brought a proposed class action on behalf of people who entered Coinbase’s $1.2 million Dogecoin sweepstakes in June 2021 and bought or sold at least $100 of Dogecoin on a Coinbase exchange during the specified period. Coinbase hired Marden-Kane to administer the sweepstakes.

The plaintiffs asserted seven claims against both defendants: California Unfair Competition Law claims based on alleged unlawful lotteries; a California Unfair Competition Law claim concerning sweepstakes solicitation materials; false-advertising claims under California’s False Advertising Law and the Unfair Competition Law; an unfair-business-practices claim; a claim under California’s Consumer Legal Remedies Act; and an Unfair Competition Law claim based on alleged violations of the Consumer Legal Remedies Act.

Arbitration and pre-suit process

The plaintiffs’ Coinbase User Agreements contained arbitration provisions. Coinbase had appealed an earlier order denying its motion to compel arbitration. The district court held that the appeal transferred jurisdiction over the arbitration issue to the Ninth Circuit, so the district court could not decide whether the arbitration provision applied to Coinbase while that appeal remained pending.

The court also held that Marden-Kane could not enforce Coinbase’s arbitration provision because Marden-Kane was not a party to the User Agreements and had not shown that an exception applied. The court rejected Marden-Kane’s reliance on equitable estoppel and successor-in-interest theories. It therefore denied both defendants’ motions concerning arbitration.

Marden-Kane also argued that the plaintiffs failed to complete a required process for contacting Coinbase before filing suit. The court held that Marden-Kane lacked standing to enforce that provision. It further held that the provision applied only before an arbitration claim or a small-claims action, not before a federal lawsuit. The court therefore denied the motion on this ground without deciding whether the provision was unconscionable, meaning unfairly one-sided or oppressive.

Class-action waiver

The Official Rules required entrants to waive class actions and stated that California state and federal courts had jurisdiction over promotion-related controversies. The defendants asked the court to enforce the class-action waiver.

The court applied California’s unconscionability analysis because the waiver was not combined with an arbitration provision. The court found that the plaintiffs’ alleged damages—between $100 and $220 for each named plaintiff—were predictably small. It also noted that the defendants did not contest the other relevant factors, including that the rules were a consumer contract drafted by a party with greater bargaining power and that the plaintiffs alleged a scheme affecting many consumers. The court found the class-action waiver unconscionable and did not enforce it.

Illegal-lottery claims

The court had previously held that the plaintiffs could not state a claim under California Penal Code section 320 because they were not required to buy or sell Dogecoin to enter the sweepstakes. In the amended complaint, the plaintiffs alleged that ordinary consumers could not reasonably have known about the free method of entry and that the defendants concealed it.

The court held that these new allegations did not change its earlier conclusion. It granted the defendants’ motions as to claims 1 and 5 to the extent they were based on an alleged illegal lottery and dismissed those portions with prejudice because amendment would be futile.

Claims against Marden-Kane

Marden-Kane argued that the plaintiffs improperly grouped it together with Coinbase and did not allege enough facts against it. The court disagreed. The plaintiffs alleged that Marden-Kane helped plan and execute the sweepstakes, collaborated with Coinbase on the advertising, and helped draft and finalize the Official Rules. The court found those allegations sufficient and denied Marden-Kane’s motion on that ground.

Consumer Legal Remedies Act claims

The court held that the Consumer Legal Remedies Act covers certain transactions involving tangible goods or services, but not cryptocurrency as an intangible good. The parties agreed that Dogecoin was cryptocurrency. The court rejected the plaintiffs’ argument that Coinbase’s role in facilitating trades made its services independently covered by the statute. It concluded that the alleged services were not meaningfully different from ancillary services connected to the sale of cryptocurrency.

The court granted both defendants’ motions on the Consumer Legal Remedies Act claims, identified in the conclusion as claims 6 and 7, and dismissed those claims with prejudice because amendment would be futile.

Injunctive relief and disposition

The plaintiffs did not oppose dismissal of their request for injunctive relief. The court granted the defendants’ motions on that issue and, in its conclusion, stated that the request was dismissed with prejudice.

The court’s final disposition was to grant in part and deny in part both Coinbase’s and Marden-Kane’s motions to dismiss. It granted with prejudice the motions concerning injunctive relief, the Consumer Legal Remedies Act claims 6 and 7, and claims 1 and 5 to the extent based on an unlawful lottery. It denied the remainder of both motions. Judge Sallie Kim signed the order as a United States Magistrate Judge.