A federal judge has denied Coinbase's motion to force a lawsuit over its Dogecoin sweepstakes into arbitration, allowing the case to proceed in court. The lawsuit alleges the crypto exchange misled users about requirements to enter its 2021 "Trade Doge, Win Doge" promotion.
Filed in 2021, the class action lawsuit accused Coinbase of obscuring the fact that users could enter the $1.2 million Dogecoin giveaway for free, without having to trade $100 of the meme cryptocurrency on its platform, reports Reuters. It is a separate legal action from the lawsuit against Elon Musk over alleged price manipulation.
The Coinbase suit, led by plaintiff David Suski, argues that Coinbase deliberately concealed a free mail-in entry option in order to drive trading volume and liquidity for its new Dogecoin listing.
“The official rules evince the parties' intent not to be governed by the user agreement's arbitration clause when addressing controversies concerning the sweepstakes,” wrote the Ninth Circuit in its decision to keep the claims in court, according to Law360, which affirmed that the U.S. Supreme Court will review the decision. This marks the second case over arbitration rules used by the crypto exchange to reach the high court in the past year.
According to the lawsuit, Coinbase’s sweepstakes rules included a way to enter without payment by mailing in a 3x5 index card, as required by law. However, its promotional ad allegedly hid this option in faint, small print in order to push users towards paying the $100 entry fee.
“Coinbase knew that sweepstakes entrants who learned that they could enter the sweepstakes for free... would choose to enter for free, rather than purchase $100 worth of Dogecoin,” reads the complaint.
The lawsuit argues that Coinbase deliberately obscured the free entry method to drive trading volume for its new Dogecoin listing. The exchange had added support for the meme cryptocurrency just prior to launching the giveaway promotion.
“Coinbase was able to dramatically increase its Dogecoin trading volume and revenues by concealing the fact that consumers could enter the Sweepstakes for free,” the complaint states.
Suski claims he would not have paid $100 to enter had Coinbase properly disclosed the free method of entry, and alleges violations of California’s false advertising and unfair competition laws. The class action seeks over $5 million in damages on behalf of sweepstakes participants who paid the $100 entry fee.
Coinbase tried to push the lawsuit out of court and into private arbitration, citing arbitration agreements its users sign when opening accounts. However, a judge ruled that the sweepstakes terms specifying California courts as the forum superseded the account agreements.
“We are hopeful that the court, like every judge below, will hold Coinbase to the plain language of its own contracts with consumers," Suski's counsel, David J. Harris Jr. of Finkelstein & Krinsk LLP, told Law360.
The crypto exchange previously succeeded in forcing another user lawsuit into arbitration last year. However, it must now convince the high court to overturn the lower court’s decisions in the Dogecoin sweepstakes case.
The “Trade Doge, Win Doge” sweepstakes promised prizes up to $300,000 in Dogecoin following the token’s listing on Coinbase. However, many entrants felt misled when the free entry option later came to light.
In online crypto forums like Reddit, angry users accused Coinbase of concealing the free entry method in order to "artificially inflate demand and trading volume" for its new Dogecoin listing.
"This is so scammy. I'm actually shocked that a public company would do this,” wrote one Redditor in the r/Coinbase subreddit.
The controversy also highlighted ongoing critiques about Coinbase’s treatment of Dogecoin, with some critics arguing its listing of the meme token lacked substance beyond generating publicity and trading fees.