Thursday, January 13, 2022

Arbitration agreement doesn't cover sweepstakes that has its own rules

Suski v. Marden-Kane, Inc., 2022 WL 103541, No. 21-cv-04539-SK (N.D. Cal. Jan. 11, 2022)

Plaintiffs filed a putative class action “on behalf of themselves and persons who opted into Coinbase’s $1.2 million Dogecoin (DOGE) sweepstakes in June 2021, and who purchased or sold Dogecoins on a Coinbase exchange for a total of $100 or more between June 3, 2021 and June 10, 2021.” The plaintiffs created Coinbase accounts before the sweepstakes began; the user agreement “indisputably” contains an arbitration provision covering “any dispute arising under this Agreement” or “any dispute arising out of or relating to this Agreement or the Coinbase Services,” depending on the plaintiff.

The sweepstakes ad stated:

Trade DOGE. Win DOGE. Starting today, you can trade, send, and receive Dogecoin on and with the Coinbase Android and iOS apps. To celebrate, we’re giving away $1.2 million in Dogecoin. Opt in and then buy or sell $100 in DOGE on Coinbase by 6/10/2021 for your chance to win. Terms and conditions apply.

Along with some other fine, light-colored print, the ad continued: “NO PURCHASE NECESSARY TO ENTER OR WIN. PURCHASES WILL NOT INCREASE YOUR CHANCES OF WINNING.” There were other steps that encouraged consumers to trade. The complaint alleged that, “Coinbase, based on in-depth, empirical data from a previous sweepstakes, knew that the wording, design, and presentation of their Dogecoin sweepstakes advertisements would cause most users never to see the information about the alternative ways to enter on the separate ‘rules and details’ webpage.”

The ”Official Rules” stated, in relevant part (uncapitalized because I actually would like you to be able to read this): “The California courts (state and federal) shall have sole jurisdiction of any controversies regarding the promotion and the laws of the state of California shall govern the promotion. Each entrant waives any and all objections to jurisdiction and venue in those courts for any reason and hereby submits to the jurisdiction of those courts.”

Plaintiffs alleged that this was an unlawful lottery and that the promotion violated the usual California statutes.

Coinbase moved to compel arbitration.  “A party seeking to compel arbitration must prove by a preponderance of the evidence the existence of an arbitration agreement.” The terms conflicted; which governed and who decides? Whether the court or the arbitrator would determine which contract applied was an issue “for judicial determination unless the parties clearly and unmistakably provide otherwise.” Three of four plaintiffs agreed to language that said “enforceability, revocability, scope, or validity of the Arbitration Agreement … shall be decided by an arbitrator and not by a court or judge.” But the dispute here wasn’t about the scope of the agreement; it was whether the agreement had been superseded by another, separate contract. The plaintiffs agreed that the arbitration agreement would apply if it were not for their subsequent agreement to the official rules. Because of this subsequent agreement, the interaction between the two contracts was not “clearly and unmistakably delegated in the arbitration provision to the arbitrator.”

So, which contract governed? “Both provisions are all-inclusive, both are mandatory, and neither admits the possibility of the other.” Coinbase’s argument that the sweepstakes Official Rules only applied to non-Coinbase users was contradicted by the terms applying the rules to all “entrants.” Given this conflict, the subsequent contract superseded the first.

Turning to the motion to dismiss: Coinbase argued that the Dogecoin sweepstakes was not an illegal lottery under California law because it provided free alternative methods of entry. This was a close case, but the current allegations did not support a claim that the sweepstakes was an illegal lottery. “Although Plaintiffs may not have been aware of it when they made a trade of Dogecoins, they were not actually required to trade Dogecoins in order to enter the sweepstakes and have a chance to win. Because California penal statutes are construed strictly and because no California court has held that being unaware of the free method of entry is sufficient to demonstrate the required consideration, the Court finds that Plaintiffs have not and cannot allege a violation of California Penal Code § 320.”

However, “[t]hat many people may not have been aware that there was a free method of entry is significant for Plaintiffs’ claims for disclosure and misrepresentation under the UCL, FAL, and CLRA.”

Plaintiffs stated a claim that the materials were likely to deceive a reasonable consumer that they needed to make a trade to participate in the sweepstakes. Despite the disclosures, “its advertising methods heavily directed people to make a trade in order to participate in this sweepstakes,” and “no purchase necessary” was ambiguous in light of the other statements regarding the need to “buy or sell” Dogecoin. “Persons could have reasonably believed they were required to buy or sell Dogecoin to participate, which would have been consistent with not making a purchase but still requiring them to make a trade.”

California law also requires a “clear and conspicuous statement of the no-purchase-or-payment-necessary message” in solicitation materials. Plaintiffs alleged sufficient facts to show that Coinbase’s advertisements were not “clear and conspicuous” as to whether all persons could enter for free.

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