court rejects illegal lottery and CLRA claims against Coinbase Dogecoin sweepstakes

Suski v. Marden-Kane, Inc., 2022 WL 3974259, No. 21-cv-04539-SK (N.D. Cal. Aug. 31, 2022)

This is a lawsuit arising from Coinbase’s $1.2 million Dogecoin (DOGE) sweepstakes in June 2021. The court dismisses some of the claims despite rejecting arbitration and deeming the class waiver in the contest rules unconscionable. In essence, plaintiffs alleged that the sweepstakes was misleading about whether buying/trading was required to enter, and asserted claims based on California Penal Codes §§ 319 and 320 regarding unlawful lotteries as well as UCL, FAL, and CLRA claims.

Lottery claims: It was not enough to allege that plaintiffs individually and reasonable consumers generally didn’t understand that free entry to the contest was available. Even allegations that defendants “objectively conceal[ed] from those consumers and from the public at large that the consumers [could] obtain free chances to win” were insufficient. “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.”

CLRA: Failed because the CLRA covers only goods and services, which are defined, respectively, for CLRA purposes as “tangible chattels bought or leased for use primarily for personal, family, or household purposes,” and “work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods.”

The California Supreme Court previously held that the CLRA’s protections do not extend to the sale of life insurance. Life insurance contracts are not “tangible chattels.” Helping consumers select insurance policies, assisting policyholders to maintain their policies, and processing claims were “ancillary services” that weren’t covered; to do so “would defeat the apparent legislative intent in limiting the definition of ‘goods’ to include only ‘tangible chattels.’ ” Subsequent courts applying California law reasoned similarly with respect to mortgage loans or the ancillary services connected with servicing home loans.

Cryptocurrency is “an intangible good outside the purview of the CLRA.” Facilitating trading in cryptocurrency was not a standalone “service” even if Coinbase doesn’t also buy or sell cryptocurrency; it was still “ancillary” in the relevant sense.