Antitrust Law Daily Wrap Up, ADVERTISING—Cal. App.: Coinbase users seeking public injunctive relief for deceptive ads avoid arbitration, (Sep 24, 2024)

By Rebecca Mayo, J.D.

The Coinbase sought to bar Coinbase from making statements claiming it is the “most trusted” and “most secure cryptocurrency platform.”

Injunctive relief seeking to bar a party from making misrepresentations to the public in online, television, and newspaper advertisements, is public injunctive relief and therefore not subject to arbitration, according to a California appellate court. The court found that although a complaint against Coinbase, Inc. was a class action complaint filed on behalf of individual plaintiffs and those similarly situated, the requested relief was intended to benefit the general public. Thus, the court found that the matter was not subject to the arbitration provision of the user agreement entered into by the users of the Coinbase platform (Kramer v. Coinbase, Inc., No. A167779 (Cal. App. Sept. 12, 2024)).

Coinbase operates an online platform for buying, selling, and transferring cryptocurrencies. As part of creating an account, Coinbase users are required to accept a user agreement which contains an arbitration clause. After hackers allegedly gained access to certain user accounts and stole funds, users filed a class action complaint related to various losses sustained on the platform (Aggarwal I). The class action complaint alleged that Coinbase failed to protect the accounts, mitigate their losses, or provide support following the thefts and sought injunctive relief, declaratory relief, compensatory damages, statutory damages, treble damages, restitution, disgorgement, punitive damages, and attorneys’ fees and costs. Coinbase moved to compel Aggarwal I to arbitration pursuant to the terms of its user agreement and the court granted the motion (Aggarwal v. Coinbase, Inc. (N.D. Cal. 2023) 685 F.Supp.3d 867, 882).

While Aggarwal I was pending, the users filed another complaint asserting Coinbase misrepresented its security features and alleged claims under the Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.; CLRA), the California False Advertising Law (Bus. & Prof. Code, § 17500, et seq.; FAL), and the California Unfair Competition Law (Bus. & Prof. Code, § 17200, et seq.; UCL), and exclusively sought “public injunctive relief.” Coinbase again moved to compel arbitration pursuant to the terms of its user agreement and the court denied the motion finding that the users were only seeking public injunctive relief. Coinbase appealed.

Public vs. private injunctive relief. In McGill v. Citibank, N.A. 2 Cal.5th 945 (2017), the court noted that an arbitration provision that waives a plaintiff’s right to seek public injunctive relief is invalid and unenforceable. The court defined private injunctive relief as primarily resolving a private dispute and rectifying individual wrongs, while public injunctive relief benefits the general public and benefits the plaintiff as a member of the general public. Specifically, the court identified examples of an injunction under the CLRA against a defendant’s deceptive methods, acts, and practices or an injunction under the UCL or the false advertising law against deceptive advertising practices, as both being to the benefit of the public rather than rectifying individual wrongs.

The court here found that the complaint alleged ongoing harm toward the general public including allegations that the misrepresentations about Coinbase’s security deceived members of the general public, enticed consumers into creating accounts, and that the public would suffer injuries if the misrepresentations were allowed to continue. The court further found that the complaint asserted that the misrepresentations were “likely to deceive reasonable consumers” and Coinbase continued to misrepresent its security measures precisely to deceive the general public into creating accounts, investing money, and utilizing its services, and the injunctive relief sought was to bar Coinbase from continuing to make such statements to the public. Additionally, the injunction did not need to benefit the entire public as a diffuse whole, but benefitting existing and potential customers was sufficient to constitute public relief.

Other claims. Coinbase argued that the users failed to meet their burden of proof by failing to offer any evidence regarding how the public would benefit from the injunctive relief. However, the court found that the complaint identified “specific statements at issue, how those statements were conveyed by Coinbase, and why those statements would allegedly mislead the public.” According to the court, if those statements were ultimately proven at trial, they would support a claim for public injunctive relief.

Coinbase also argued that the order compelling arbitration in Aggarwal I should impact the court’s analysis. The court disagreed, finding that although both actions involve substantially the same plaintiffs and arise from the same set of facts, Aggarwal I alleged various causes of action and sought relief not sought in the current matter. The current matter focused solely at Coinbase’s misrepresentations directed to the public, therefore supporting the public relief claim.

The Case is No. A167779.

Judge: Petrou, I.

Attorneys: J. Noah Hagey (Braunhagey & Borden LLP) for Darren Kramer. Josephine Mason Petrick (Norton Law Firm PC) for Coinbase, Inc.

Companies: Coinbase, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews