Coinbase Faces Supreme Court Defeat in Dogecoin Sweepstakes Lawsuit

In a decisive unanimous ruling, the US Supreme Court has sided against Coinbase in a class-action lawsuit stemming from its 2021 Dogecoin sweepstakes.

The high-profile case, resolved on May 23, revolved around a promotional event promising prizes totaling up to $1.2 million.

The lawsuit was initiated by participant David Suski and others, who alleged that Coinbase, along with the sweepstakes management company, contravened California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act by misleading participants. The crux of the dispute was Coinbase’s effort to enforce arbitration based on its user agreement, which a District Court decided also applied to the sweepstakes agreement.

The Supreme Court’s ruling supported the District Court’s decision. It clarifies that disputes related to the sweepstakes are to be adjudicated in state and federal courts, effectively nullifying the arbitration clause that would typically mandate dispute resolution through a third party without court involvement.

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This outcome marked a significant legal defeat for Coinbase, which preferred arbitration as the dispute resolution method. Following the decision, Paul Grewal, Coinbase’s Chief Legal Officer, expressed mixed feelings.

“What a week. Some you win. Some you lose. We are grateful for having had the opportunity to present our case to the Court and appreciate the Court’s consideration of this matter,” Grewal said.

Legal commentators have keenly analyzed the implications of this ruling. Stephen Carter, a Bloomberg Opinion columnist, pointed out a fundamental oversight by Coinbase’s legal team.

Justice Ketanji Brown Jackson, writing for the court, noted an essential inconsistency, i.e., the existence of two contracts.

The User Agreement included an arbitration clause. However, the Official Rules of the sweepstakes, which all entrants had to agree to, mentioned nothing about arbitration. Instead, they included a forum selection clause assigning exclusive jurisdiction to California courts over any disputes.

This inconsistency was pivotal to the Supreme Court’s decision. It revealed a significant legal error.

“The contracts professor in me ventures to suggest, as gently and respectfully as possible, that the company’s lawyers should have foreseen this problem and ensured that the two contracts reflected a single, clear proposition,” Carter explained.

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The ruling might influence future legal frameworks within the crypto industry significantly. It highlights the necessity for clear, consistent legal terms in user agreements and promotional rules.

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