CardStarter, Ltd. v. SundaeSwap, Inc.

Background

CardStarter alleged that it supported SundaeSwap’s development and launch of a decentralized cryptocurrency exchange on the Cardano blockchain. The parties entered into a written Collaboration and Marketing Agreement. CardStarter alleged that SundaeSwap also promised, in a separate unwritten “Gentleman’s Agreement,” to provide 150 million SUNDAE tokens in exchange for CardStarter’s existing liquidity pools and its efforts to encourage community members to transfer their pools to SundaeSwap’s exchange.

According to CardStarter, SundaeSwap repeatedly reassured it that the token arrangement would be honored. Shortly before the exchange’s January 2022 launch, however, SundaeSwap proposed transferring only 10 million tokens. CardStarter also alleged that SundaeSwap later collaborated with Cardashift, a competing launchpad.

CardStarter’s First Amended Complaint asserted five claims: breach of contract based on the Gentleman’s Agreement, promissory estoppel, fraud, breach of the Collaboration and Marketing Agreement, and violations of California’s Unfair Competition Law and False Advertising Law. Defendants moved to dismiss the entire complaint under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim.

Court’s analysis

The court first declined to dismiss the complaint under the “sham pleading” doctrine. That doctrine can prevent a plaintiff from changing factual allegations in an amended complaint to avoid dismissal. The court concluded that the Ninth Circuit precedent most consistently applied by district courts in the circuit did not permit defendants to use that doctrine on a motion to dismiss in this case.

The court then held that CardStarter had pleaded sufficient facts for each claim. For the Gentleman’s Agreement, the court found that CardStarter plausibly alleged an enforceable contract, a breach, and resulting injury. The court treated defendants’ arguments about whether the agreement was written and enforceable as factual disputes or potential affirmative defenses that were not appropriate to resolve at the motion-to-dismiss stage.

The court also found that CardStarter adequately pleaded promissory estoppel. It concluded that the alleged promise of tokens in exchange for liquidity pools was clear and definite enough, and that whether the parties had reached a firm agreement or merely intended to continue negotiating was a factual question.

The fraud claim also survived. The court noted that the amended complaint identified alleged misleading statements, the dates and means by which they were made, and the defendants who made them, satisfying the requirement that fraud be pleaded with particularity. The court likewise held that CardStarter sufficiently pleaded breach of the Collaboration and Marketing Agreement; defendants’ arguments largely concerned the agreement’s meaning and the merits of the dispute rather than the adequacy of the pleading.

Finally, the court allowed the claims under California’s Unfair Competition Law and False Advertising Law to proceed. It found that the adequately pleaded contract and fraud theories could support those claims and that CardStarter had adequately alleged injury and a lack of an adequate legal remedy for the requested injunctive relief.

Disposition

The court denied defendants’ motion to dismiss the First Amended Complaint in its entirety. The order did not decide whether CardStarter will ultimately prevail; it held only that the five claims were sufficiently pleaded to continue at this stage.