Sandoval v. Uphold HQ Inc.
Filing
56
OPINION & ORDER re: 19 MOTION for Judicial Notice re: 14 MOTION to Dismiss . . filed by Addison Sandoval, Richard Neal, Lionel Ducote, Nicholas King, 14 MOTION to Dismiss . filed by Uphold HQ Inc. For the foregoing reasons, Uphold's motion to dismiss Plaintiffs' Amended Complaint is GRANTED. Plaintiff's motion for judicial notice is also GRANTED. In addition, Plaintiffs' request for leave to amend their First Amended Com plaint is GRANTED. Plaintiffs must file a second amended complaint within 28 days of entry of this Opinion & Order. The Clerk of Court is respectfully directed to close the open motions at Docs. 14 and 19. (Signed by Judge Vernon S. Broderick on 3/27/2024) (rro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
ADDISON SANDOVAL, et al.,
:
:
Plaintiffs,
:
:
- against :
:
:
UPHOLD HQ INC.,
:
:
Defendant. :
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21-CV-7579 (VSB)
OPINION & ORDER
Appearances:
Rachel Geman
Christopher E. Coleman
Lieff Cabraser Heimann & Bernstein, LLP
New York, New York
Catherine Elizabeth Anderson
Giskan Solotaroff & Anderson, LLP
New York, New York
Counsel for Plaintiffs
Benjamin Delalio Bianco
Caitlin R. Trow
Meister Seelig & Fein LLP
New York, New York
Counsel for Defendant
VERNON S. BRODERICK, United States District Judge:
This is a putative consumer class action filed by Plaintiffs Addison Sandoval
(“Sandoval”), Lionel Ducote (“Ducote”), Nicholas King (“King”), and Richard Neal (“Neal”)
(collectively, “Plaintiffs”), alleging that Defendant Uphold HQ, Inc. (“Uphold”) misled
customers like Plaintiffs through various marketing practices that caused Plaintiffs to invest in a
1
cryptocurrency product that ultimately lost all its value. Before me is Uphold’s motion to
dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(6). Because I find that
Plaintiffs have failed to allege that Uphold engaged in a deceptive practice within the meaning of
applicable law, Uphold’s motion to dismiss is GRANTED.
I.
Factual Background 1
A. Uphold, the “Earn” Product, and Cred
Uphold is a South Carolina corporation with its “headquarters located at 6 West 18th
Street, 3rd Floor, New York, New York 10011.” (FAC ¶ 19.) Uphold markets itself as a “digital
money platform” that allows its customers to “transact in fiat currencies, cryptocurrencies, and
precious metals.” (Id. ¶¶ 23–24.) Its “stated goal is to bring cryptocurrency products to the mass
consumer market.” (Id. ¶ 1.)
In late 2018, Uphold announced it would offer a financial product called “Uphold Earn.”
(Id. ¶ 28.) Its press releases indicated that the “Earn” product would work in conjunction with
what it referred to as a “U.S. Dollar Stablecoin (Universal Dollar), a fully-transparent, digital
asset that is backed 1-to-1 with U.S. dollars to be held at U.S. domiciled, FDIC-insured banks.”
(Id. ¶ 29.) 2 Uphold’s 2018 press release stated that Uphold “customers who purchase the
The following facts are taken from the well-pleaded allegations found in Plaintiff’s First Amended Class Action
Complaint (Doc. 12 (“FAC” or “First Amended Complaint”)) filed in this action, as well as from documents integral
to the FAC. I assume the well-pleaded factual allegations set forth in the FAC, and in those documents integral to it,
to be true for purposes of the motion to dismiss the First Amended Complaint. See Kassner v. 2nd Ave. Delicatessen
Inc., 496 F.3d 229, 237 (2d Cir. 2007); see also Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002)
(A complaint is “deemed to include any written instrument attached to it as an exhibit or any statements or
documents incorporated in it by reference. . . . Even where a document is not incorporated by reference, the court
may nevertheless consider it where the complaint relies heavily upon its terms and effect, which renders the
document integral to the complaint.” (internal quotations and citations omitted)); see Fed. R. Civ. P. 10(c) (“A copy
of any written instrument which is an exhibit to a pleading is a part thereof for all purposes.”). My references to
these facts should not be construed as a finding as to their veracity, and I make no such findings.
1
“A stablecoin is a cryptocurrency whose value is ‘pegged’ (meaning tied) to another asset—often a traditional fiat
currency like the US dollar. . . Stablecoin advocates believe these cryptocurrencies are critical for bridging ‘realworld’ assets like fiat currencies with digital assets on the blockchain.” What is a stablecoin?, Fidelity,
https://www.fidelity.com/learning-center/trading-investing/what-is-a-stablecoin (last visited November 2, 2023).
2
2
Universal Dollar can opt-in to Uphold Earn, which functions much like a traditional banking
product, and can receive attractive and competitive rates, currently as high as five percent.” (Id.
¶ 30 (emphasis removed).)
Uphold referred to Earn—or some variant of Earn, such as “Start Earning”—in marketing
materials that touted Uphold customers would have the option to “earn interest on digital assets,”
such as in the below marketing image:
(Id. ¶¶ 54–55.) In other marketing materials, Uphold referred to Earn as “#CredEarn” and stated
that it was “proud to partner with @ihaveCred to give Uphold users access to earn interest” on
their cryptocurrency holdings. (Id. ¶ 57(a).)
The Earn product was itself an investment instrument offered through Cred Inc. (“Cred”),
a company separate from Uphold that is now in Chapter 11 bankruptcy. (Id. ¶ 32; see also ¶ 35
(referring to filings in Cred’s bankruptcy).) According to the report of the examiner appointed in
Cred’s bankruptcy, “Cred was a cryptocurrency financial services platform that offered holders
of cryptocurrencies the option of investing those assets with Cred (through the ‘CredEarn’
3
program) or borrowing against those cryptocurrencies (through the ‘CredBorrow’ program.).”
(Examiner’s Report 3.) 3 “Those participating in CredEarn agreed to invest their cryptocurrency
with Cred for a finite period of time, during which Cred guaranteed those customers a
predetermined rate of return.” Id. CredEarn was thus “similar to a certificate of deposit.” (Id. at
26–27.) Once a cryptocurrency holder loaned funds to Cred through the CredEarn product,
“Cred would then convert [the] cryptocurrency assets . . . into fiat currency and use the proceeds
to make loans.” (Id. at 27.) “Cred would generate profits based on the spread between the
interest rate offered to customers and the rate charged by Cred under the relevant loans.” (Id.)
From the perspective of an Uphold user, upon purchasing “cryptocurrency on Uphold,
Uphold would display an advertisement referencing its partnership with Cred and representing
that Cred products allowed Uphold customers to earn interest on their assets.” (Id. at 33; FAC ¶
58 (citing Examiner Report 33).) Uphold also directed its customers to Earn by featuring “an
‘Earn’ dashboard” within a customer’s digital “wallet” on Uphold’s website and app, which
showed “the status and value of [a customer’s] interest earning investments.” (FAC ¶ 60.)
Prior to being transferred to “the Cred website,” “Uphold . . . provided a disclaimer” to
customers. (Id. ¶ 70.) The disclaimer stated, among other things,
You are leaving Uphold and going to a third-party site . . . . Uphold and its affiliates
are not responsible for the products, services, and content on the third-party
website. Any agreement you enter into with CRED LLC will not amend, replace
or supersede any existing agreement(s) with Uphold that you may have.
(Anderson Decl. Ex. 3.) 4 The disclaimer also stated that that “the CredEarn Program is
offered solely by Cred LLC to Non-U.S. Persons.” (Id.; see also FAC ¶ 73.) The
“Examiner’s Report” refers to the Report of Robert J. Stark, Examiner, filed in Cred’s bankruptcy. In re Cred Inc.,
Case No. 20-12836 (JTD), Doc. 605 (D. Del. Mar. 8, 2021).
3
4
“Anderson Decl.” refers to the Declaration of Mark G. Anderson in Support of Defendant’s Motion to Dismiss,
4
disclaimer appeared as a separate notice and warning on Uphold’s website—to proceed to
Cred’s website and to buy into Earn, customers first had to click a continue button at the
bottom of the disclaimer:
(Id.) 5
(Doc. 16), and the exhibits attached thereto, all of which were referenced or quoted in Plaintiff’s pleadings.
(Compare FAC ¶ 133 (referring to the legal efficacy of a choice of law clause in Uphold’s “Terms and Conditions”)
with Anderson Decl. Ex. 1; compare FAC ¶ 20 (quoting “Uphold’s User Agreement”) with Anderson Decl. Ex. 2;
compare FAC ¶ 71 (quoting the disclaimer) with Anderson Decl. Ex. 3.) Plaintiffs also attached Uphold’s General
Terms and Conditions, dated January 28, 2020, as Exhibit A to their original Complaint filed in this action. (Doc. 11.) (Cf. Anderson Decl. Ex. 1 (General Terms and Conditions dated January 28, 2020).)
Uphold’s Terms and Conditions state “We may partner with other third-party service providers to offer users
different funding options and financial instruments (‘Third-Party Programs’). By registering for and/or using any
Third-Party Programs, you expressly agree that you have read, understand and accept all the applicable terms and
conditions that may apply.” (Anderson Decl. Ex. 1 § 3.4.)
5
5
Once on the Cred website, Uphold users would see “displayed ‘Total Uphold
Assets’ in the upper right-hand corner.” (FAC ¶ 70.) 6
B. Uphold Discontinues Access to Earn and Cred Files for Bankruptcy
On or around October 23, 2020, Uphold removed the ability for its customers to access
Earn, including its customers’ ability to withdraw Earn funds; that same day it also sent its
customers an email about Earn’s discontinuation. (Id. ¶ 65.) After Cred filed for bankruptcy,
Uphold published a document entitled “Cred: An open letter to affected users from Uphold’s
CEO.” (Id. ¶ 68.) In this letter, Uphold stated that it was not aware of any “financial
irregularities at Cred until October 23, 2020, at 11:45 am (EDT) when it was contacted by a
journalist looking to corroborate a story about Cred ‘losing several million in client funds.’”
(Id.) Cred filed its Chapter 11 bankruptcy petition on November 7, 2020. In re Cred Inc., Case
No. 20-12736 (JTD), Doc. 1 (D. Del. Nov. 7, 2020).
According to the Examiner’s Report from Cred’s bankruptcy, Cred failed during the
“‘flash crash’ in cryptocurrency trading value” that came in March of 2020, which in turn caused
a liquidity crisis. (Examiner’s Report 3.) 7 In the Examiner’s view, “Cred’s corporate managers
did not run the business to effectively counterbalance [the] risk” of “[s]wings in cryptocurrency
trading value” and engaged in a “dereliction” of proper management. (Id. at 3–4.)
Cred’s CEO, Daniel Schatt, was one of Uphold’s board members and Cred’s “sole
director . . . in charge of all operational issues.” (FAC ¶¶ 33–34, 48.) “For Cred, Uphold
assisted with operations and acted as its customer wallet.” (Examiner’s Report 32.) “Uphold
6
This is the only allegation Plaintiffs plead about the user experience on the Cred website.
In explaining what precipitated Cred’s bankruptcy, the Examiner’s Report sets forth more details, including that
Cred was heavily invested with a Chinese microlender called “moKredit,” which was owned by Cred’s co-founder
and 50% owner Lu Hua. (Examiner’s Report 6.) After the flash crash, “Cred had to repatriate substantial capital
from moKredit, but moKredit was not positioned to return any capital.” (Id.)
7
6
was a customer generator for Cred . . . .” (Id. at 33.) “Under the customer agreements furnished
to the Examiner, Cred retained the discretion to invest funds obtained from Uphold customers as
it saw fit (no differently than any other CredEarn customer).” (Id.)
On or about October 23, 2020, Uphold customers who had bought into Earn became
unable to access their Earn balance on the Uphold platform. (FAC ¶¶ 65, 67.) This affected
Plaintiffs financially. 8 For example, Sandoval made investments totaling $45,411 into Earn
through his Uphold wallet—with money initially wired from his bank account—from July 1,
2020 to October 12, 2020. (Id. ¶¶ 77–78.) Each of Sandoval’s Earn investments—which were
made in amounts ranging from $2,500 to $7,494—were for six-month periods and at a
“guaranteed” rate of return of either 10% or 13% per year. (Id. ¶ 78.) In October of 2020, once
Sandoval learned that Earn was discontinued, he contacted his bank, which “issu[ed]” him a
“provisional credit of $10,000.” (Id. ¶ 79.) On December 3, 2020, Uphold closed Sandoval’s
account and sent him an email stating, among other things, “Don’t worry, your funds are safe
and we’ll be in touch shortly about handling any available balance.” (Id. ¶ 80.) Shortly
thereafter, Sandoval was suspended from using Uphold. (Id. ¶ 81.)
Sandoval sought legal remedy from Uphold under a California consumer protection law
by filing suit in the Superior Court of the State of California. (Id. ¶¶ 83–84.) This suit was
ultimately dismissed on the grounds that Uphold’s User Agreement required suit to be brought in
New York. (Id. ¶ 85; Anderson Decl. Ex. 2 § 5.7 (“You agree that the laws of the State of New
York, without regard to principles of conflict of laws, govern this Agreement and any claim or
dispute between you and us except to the extent governed by U.S. federal law. You consent and
8
Each Plaintiff’s individual investments in the Earn product are pled in the FAC. (See FAC ¶¶ 76–96.)
7
submit to the exclusive jurisdiction of the courts (state and federal) located in the State of New
York, County of New York in connection with any dispute or controversy arising under or
related to this Agreement, the Terms and Conditions or the subject matter hereof or thereof.”).)
II.
Procedural History
Plaintiffs filed their original complaint in this action on September 10, 2021. (Doc. 1.)
Following entry of a stipulation and order setting forth a schedule, (Doc. 11), on December 13,
2021, Plaintiffs filed the FAC, (Doc. 12), and on January 14, 2022, Uphold moved to dismiss the
FAC by filing a motion, (Doc. 14), declarations and exhibits, (Doc. 15-16), and memorandum of
law, (Doc. 17). On January 28, 2022, Plaintiffs filed their opposition to the motion to dismiss,
which included a memorandum of law, and a declaration with an exhibit. (Doc. 18.) 9 Uphold
filed its reply memorandum of law on February 9, 2022, (Doc. 22), and a declaration with
exhibits (Doc. 23). On February 28, 2024, I held a telephonic conference with the parties during
which Plaintiffs confirmed that they are citizens of California and Arizona for purposes of
diversity. At that conference, Defendant stated that it had done some diligence on this
jurisdictional issue, and informed me that it had no reason to doubt Plaintiffs’ representations.
III.
Legal Standard
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), “a
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim will have “facial plausibility when the plaintiff
On January 28, 2022, Plaintiffs also filed a motion for judicial notice of filings Uphold made in a related action
that Sandoval previously filed against it in California. (Doc. 19.) Defendant did not oppose that motion. Courts
“routinely take judicial notice of documents filed in other courts.” Kramer v. Time Warner, Inc., 937 F.2d 767, 774
(2d Cir. 1991). Accordingly, Plaintiffs’ motion for judicial notice is GRANTED.
9
8
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id. This standard demands “more than a sheer possibility
that a defendant has acted unlawfully.” Id. “Plausibility . . . depends on a host of considerations:
the full factual picture presented by the complaint, the particular cause of action and its elements,
and the existence of alternative explanations so obvious that they render plaintiff’s inferences
unreasonable.” L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 430 (2d Cir. 2011).
In considering a motion to dismiss, a court must accept as true all well-pleaded facts
alleged in the complaint and must draw all reasonable inferences in the plaintiff’s favor.
Kassner, 496 F.3d at 237. “A complaint is deemed to include any written instrument attached to
it as an exhibit or any statements or documents incorporated in it by reference.” Nicosia v.
Amazon.com, Inc., 834 F.3d 220, 230 (2d Cir. 2016) (internal quotation marks and citation
omitted). A court “may also consider matters of which judicial notice may be taken” in ruling on
a motion to dismiss. Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008).
A complaint need not make “detailed factual allegations,” but it must contain more than mere
“labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Iqbal,
556 U.S. at 678 (internal quotation marks omitted). Finally, although all allegations contained in
the complaint are assumed to be true, this tenet is “inapplicable to legal conclusions.” Id.
IV.
Discussion
Before I address the substance of the motion, I must resolve two threshold matters. First,
Plaintiffs argue that I cannot refer to the materials in the Anderson Declaration 10 at this stage of
10
See supra note 4.
9
the litigation when assessing Defendants’ motion to dismiss. (MTD Opp. 23.) 11 Defendants
counter that each exhibit to the Anderson Declaration is either referred to or even directly quoted
in Plaintiffs’ FAC. (Reply 9.) 12
As mentioned supra note 1, a complaint is “deemed to include any written instrument
attached to it as an exhibit or any statements or documents incorporated in it by reference,” as
well as any document if “the complaint relies heavily upon its terms and effect.” Chambers, 282
F.3d at 152. As also mentioned previously, the FAC refers to the legal effects of each of the
exhibits attached to the Anderson Declaration and in fact quotes directly from two of the
exhibits. Supra note 4. All of the Anderson Declaration exhibits are thus properly before me
and may be considered by me at this stage of the case.
Second, Plaintiffs assert a claim for relief under the New York General Business Law
(“GBL”) § 349, (FAC ¶¶ 122–31), and a claim for relief “in the alterative to” their GBL § 349
claim, under the consumer protection laws of various other States “notwithstanding the Terms
and Conditions” that applied to Uphold’s customers, (id. ¶ 133). 13 Uphold contends that no
claim for relief can proceed under non-New York consumer protection laws because the Terms
and Conditions governing Uphold’s relationships with its customers state, “You agree that the
laws of the State of New York, without regard to principles of conflicts of laws, govern these
Terms and Conditions and any claim or dispute between you and us except to the extent
governed by U.S. federal law.” (MTD 14; see also FAC ¶ 20 (quoting a portion of Uphold’s
“MTD Opp.” refers to Plaintiffs’ Memorandum of Law in Opposition to Defendants’ Motion to Dismiss. (Doc.
18.)
11
12
“Reply” refers to Uphold’s Reply Memorandum of Law in Further Support of Its Motion to Dismiss. (Doc. 22.)
13
Plaintiffs also assert claims for fraud/fraudulent concealment, (Doc. 12 ¶¶ 135-143), and unjust enrichment (id. ¶¶
144-151).
10
User Agreement referencing the “Terms and Conditions”).) 14 Uphold is correct that this choiceof-law provision prevents Plaintiffs from asserting claims under the laws of other States. See,
e.g., Radiology & Imaging Specialists of Lakeland, P.A. v. FUJIFILM Med. Sys., U.S.A., Inc.,
No. 20-CIV-4117 (AKH), 2021 WL 149027, at *5 (S.D.N.Y. Jan. 15, 2021) (“Plaintiff’s claim
for violation of the Floridian act are dismissed, because the EULA contains a broad choice-oflaw provision selecting New York law as the governing law for ‘any claims arising under or
relating in any way’ to the agreement.”); Canon U.S.A., Inc. v. Cavin’s Bus. Sols., Inc., 208 F.
Supp. 3d 494, 497 (E.D.N.Y. 2016) (Bianco, J.) (“the Court dismisses plaintiff’s claims under
the consumer protections laws of North Carolina, Nevada, and Florida because the parties agreed
in the Dealer Agreements to a New York choice-of-law provision”). Plaintiffs do not dispute
that they are precluded from asserting claims under a non-New York consumer protection statute
given the governing choice-of-law provision. Accordingly, Uphold’s motion to dismiss
Plaintiffs’ second claim for relief is GRANTED, and that claim is dismissed.
A. The GBL § 349 and Fraud/Fraudulent Concealment Claims
1.
Applicable Law
a. Fraud/Fraudulent Concealment
Under New York law, “the elements of a cause of action for fraud require a material
misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable
reliance by the plaintiff and damages.” Landesbank Baden–Wurttemberg v. Goldman, Sachs &
Co., 478 F. App’x 679, 681 (2d Cir. 2012) (summary order) (quoting Eurycleia Partners, LP v.
Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)). To plead a fraud claim, a plaintiff must
14
“MTD” refers to the Memorandum of Law in Support of Defendant’s Motion to Dismiss Plaintiffs’ First
Amended Class Action Complaint. (Doc. 17.)
11
satisfy Rule 9(b)’s pleading requirements, which require that a plaintiff “(1) detail the statements
(or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where
and when the statements (or omissions) were made, and (4) explain why the statements (or
omissions) are fraudulent.” Eternity Glob. Master Fund Ltd. v. Morgan Guar. Tr. Co. of N.Y.,
375 F.3d 168, 187 (2d Cir. 2004) (quoting Harsco Corp. v. Segui, 91 F.3d 337, 347 (2d Cir.
1996)). A plaintiff must also “plead the factual basis which gives rise to a strong inference of
fraudulent intent.” O’Brien v. Nat’l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991)
(quoting Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990)). “The requisite
‘strong inference’ of fraud may be established either (a) by alleging facts to show that defendants
had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong
circumstantial evidence of conscious misbehavior or recklessness.” Lerner v. Fleet Bank,
N.A., 459 F.3d 273, 290–91 (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d
Cir. 1994)). A claim of fraudulent concealment requires a plaintiff to state a legally sufficient
fraud claim. See Deutsch v. JPMorgan Chase & Co., No. 18-CV-11655 (VSB), 2019 WL
4805689, at *12 (S.D.N.Y. Sept. 30, 2019) (dismissing a claim for fraudulent concealment after
dismissing fraud claim); Tuosto v. Philip Morris USA Inc., 672 F. Supp. 2d 350, 362 (S.D.N.Y.
2009) (“To state a claim for fraudulent concealment under New York law, a plaintiff must allege
the standard elements of fraud” (citing Crigger v. Fahnestock & Co., 443 F.3d 230, 235 (2d Cir.
2006)).
b. GBL § 349
GBL § 349 declares unlawful “[d]eceptive acts or practices in the conduct of any
business trade or commerce or in the furnishing of any service.” “The elements of a cause of
action under [GBL § 349] are that: (1) the challenged transaction was consumer-oriented; (2)
defendant engaged in deceptive or materially misleading acts or practices; and (3) plaintiff was
12
injured by reason of defendant’s deceptive or misleading conduct. Thus, a plaintiff claiming the
benefit of these statutes must allege conduct that is consumer oriented.” Denenberg v. Rosen,
897 N.Y.S.2d 391 (1st Dep’t 2010) (internal citations, alterations, and quotation marks omitted).
To succeed on the second element under GBL § 349, “the allegedly deceptive acts,
representations or omissions must be misleading to a reasonable consumer.” Goshen v. Mut. Life
Ins. Co. of New York, 98 N.Y.2d 314, 324 (2002) (internal citations and quotation marks
omitted). “Whether a representation or an omission, the deceptive practice must be likely to
mislead a reasonable consumer acting reasonably under the circumstances.” Stutman v. Chem.
Bank, 95 N.Y.2d 24, 29 (2000) (internal citation and quotation marks omitted). “This is an
‘objective test’ that ‘may be determined as a matter of law or fact (as individual cases
require).’” Izquierdo v. Panera Bread Co., 450 F. Supp. 3d 453, 461 (S.D.N.Y. 2020) (quoting
Koenig v. Boulder Brands, Inc., 995 F. Supp. 2d 274, 287 (S.D.N.Y. 2014)).
With regard to the third element under GBL § 349, there is “no requirement that an
injured party show reasonable reliance on erroneous statements. . . . The plaintiff, however, must
show that the defendants’ ‘materially deceptive act’ caused the injury” of which he complains.
Stutman, 95 N.Y.2d at 29 (citations omitted).
In general, GBL § 349 “contemplates actionable conduct that does not necessarily rise to
the level of fraud.” Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 343 (1999).
Because of this, where a GBL § 349 claim fails, a similarly-premised fraud claim will often also
fail. See, e.g., Morales v. Kimberly-Clark Corp., No. 18-CV-7401 (NSR), 2020 WL 2766050, at
*6, *9 (S.D.N.Y. May 27, 2020) (dismissing GBL §§ 349 and 350 claims premised on a “failure
to warn” in part because the complaint did not plausibly allege that defendant had any
knowledge of the alleged defect, and dismissing fraudulent misrepresentation/concealment claim
13
because plaintiff failed to sufficiently plead knowledge or scienter); Reyes v. Crystal Farms
Refrigerated Distribution Co., No. 18-CV-2250 (NGG) (RML), 2019 WL 3409883, at *4
(E.D.N.Y. July 26, 2019) (dismissing GBL §§ 349 and 350 claims and fraud and negligentmisrepresentation claims because plaintiff “has not alleged that either of the representations at
issue were false.”); Daniel v. Tootsie Roll Indus., LLC, No. 17-CV-7541 (NRB), 2018 WL
3650015, at *15 (S.D.N.Y. Aug. 1, 2018) (“For essentially the same reasons as we concluded
that the slack-fill in the Products did not constitute a ‘material misrepresentation’ for purposes
of GBL §§ 349, 350, and 350-a, plaintiffs fail to plead reasonable reliance” in support of their
fraud claims).
2.
Application 15
a. Uphold’s Marketing Practices Around Earn Were “ConsumerOriented”
Uphold’s lead argument is that any statements it made about Earn are not governed by
GBL § 349 because “CredEarn is not a consumer product contemplated by GBL § 349.” (MTD
9.) Uphold is correct that a number of cases have said that GBL § 349 is “inapplicable to claims
involving securities transactions” because those cases involve “investors . . . seeking income . . .
not consumers . . . purchasing traditional good or services.” See, e.g., In re Evergreen Mut.
Funds Fee Litig., 423 F. Supp. 2d 249, 264–265 (S.D.N.Y. 2006) (citing Morris v. Gilbert, 649
F.Supp. 1491 (E.D.N.Y.1986) and Gray v. Seaboard Secs., Inc., 14 A.D.3d 852 (3d Dep’t
2005)). However, these cases fail to account for controlling New York case law finding that
Plaintiffs argue that Uphold is judicially estopped from contesting the applicability of GBL § 349 due to
representations Uphold made in a prior action in California state court. (See MTD Opp. 5–6.) This argument is
borderline-frivolous, because the exhibit Plaintiffs filed in support of its argument, from the California state court
action, plainly states that “Uphold reserves its right to contest allegations that it violated . . . statutes” including GBL
§ 349. (Doc. 18-2, at 3 n.2.) Therefore, I find that Uphold is not judicially estopped from contesting the
applicability of GBL § 349.
15
14
“consumer oriented” conduct can give rise to claims under GBL § 349 where the plaintiff
demonstrates an “extensive marketing scheme that had ‘a broader impact on consumers at
large.’” Gaidon, 94 N.Y. at 344 (quoting Oswego Laborers’ Loc. 214 Pension Fund v. Marine
Midland Bank, N.A., 85 N.Y.2d 20, 25 (1995)); see also Himmelstein, McConnell, Gribben,
Donoghue & Joseph, LLP v. Matthew Bender & Co., Inc., 37 N.Y.3d 169, 177 (2021) (reversing
lower court because “there is no textual support in General Business Law § 349 for a limitation
on the definition of ‘consumer’ based on use” of a particular good or service).
In Oswego, a not-for-profit opened two savings accounts with a bank and later calculated
that the bank “had not been paying interest on principal” passed a certain “cap, which allegedly
resulted in lost interest [payments] of” about $30,000. 85 N.Y.2d at 22–24. The not-for-profit’s
contention was that the bank’s practices in dealing with it had led it to believe it would be paid
the lost interest amount. See id. The Court of Appeals held that “the acts of [the bank] fall
within the ‘consumer-oriented’ ambit of [GBL] § 349,” because the bank “dealt with plaintiffs’
representative as any customer entering the bank to open a savings account, furnishing the
[plaintiffs] with standard documents presented to customers upon the opening of accounts. The
account openings were not unique to these two parties, nor were they private in nature or a single
shot transaction.” Id. at 26 (internal quotation marks omitted). See also Gaidon, 94 N.Y.2d at
344 (“practices” that “involv[e] an extensive marketing scheme that ha[ve] a broader impact on
consumers at large” “satisfy [GBL] § 349” (citation omitted)); Cohen v. U.S. Fid. & Guar. Co.,
No. 04-CV-5921 (RMB)(MHD), 2005 WL 1036097, at *3 (S.D.N.Y. May 4, 2005) (“Plaintiff
sufficiently alleges that the Scheme was ‘consumer oriented’ and that [d]efendants informed ‘all
insureds’” on the same basis, even though all had separate insurance contracts).
Here, Plaintiffs have alleged that Uphold marketed itself as “providing consumers
15
worldwide with convenient and secure access to” cryptocurrency trading. (FAC ¶¶ 23–25).
They further allege that Uphold engaged in consumer-facing “marketing . . . relating to its
Universal Dollar” and the “Earn” product. (Id. ¶¶ 54–57.) In other words, “[Uphold]’s conduct
is not unique to the parties” to this action. Matthew Bender & Co., 37 N.Y.3d at 178. Plaintiffs
allege that “whenever a customer bought cryptocurrency on Uphold, Uphold would display an
advertisement to the customer promoting Earn as a way to earn interest on their cryptocurrency.”
(FAC ¶ 58.) Uphold allegedly has “seven million customers.” (Id. ¶ 1.) Plaintiffs have thus
alleged that its marketing of Earn, both on its platform and off, “is consumer oriented.” Matthew
Bender, 37 N.Y.3d at 178.
b.
Uphold’s Allegedly Misleading Practices
“[I]n determining whether a reasonable consumer would have been misled by a particular
advertisement, context is crucial. For example, under certain circumstances, the presence of a
disclaimer or similar clarifying language may defeat a claim of deception.” Fink v. Time Warner
Cable, 714 F.3d 739, 742 (2d Cir. 2013) (per curiam) (finding a disclaimer defeated a GBL §
349 claim). “[W]here the overall impression of the representations is misleading . . . the
disclaimer is not a defense as a matter of law” if it does not clear up the alleged misimpression,
but if “the disclaimer addresses the precise deception alleged in plaintiffs’ complaint,” there is
“no possibility that a reasonable consumer would have been misled.” Compare Matthew Bender
& Co., 37 N.Y.3d at 180–181 (holding disclaimer effective on a motion to dismiss), with
Gaidon, 94 N.Y.2d at 345 (“the disclaimers . . . do not speak to the true, unrevealed nature of the
relationship between . . . interest rates and the vanishing dates as represented” because
“[c]onsumers vary in their level of sophistication” as to the “arithmetic” underlying the
calculation of life insurance premiums).
“In evaluating the efficacy of such a disclaimer, courts consider factors such as the font
16
size, placement, and emphasis. Courts routinely conclude that the presence of a disclaimer,
considered in context, precludes the finding that a reasonable consumer would be deceived by
the defendant’s conduct.” Bowring v. Sapporo U.S.A., Inc., 234 F. Supp. 3d 386, 390 (E.D.N.Y.
2017) (internal citations omitted).
Plaintiffs allege that Uphold misrepresented “the ‘Earn’ program as . . . part of the family
of [Uphold’s] own products,” (FAC ¶ 53), and pled various advertisements for Earn that Uphold
published and various ways that “Uphold presented ‘Earn’ as an Uphold product” through
marketing and through user interface elements on Uphold’s website, (Id. ¶¶ 54–59). Plaintiffs
then allege that “[a]t no time during the pendency of the ‘Earn’ program did Uphold disclose that
the ‘Earn’ program was simply an investment in Cred.” (Id. ¶ 61.) From these allegations, in
their opposition to Uphold’s motion to dismiss, the thrust of Plaintiffs’ arguments is that
Uphold’s marketing and user interface created the overall impression that Earn was an Uphold
product that “gave consumers a false sense of safety and security.” (See MTD Opp. 10–13.) 16
16
Plaintiffs also identify a handful of specific statements that they believe were misleading, but they fail to carry
their burden of pleading facts showing that the statements were likely to be misleading to “a reasonable consumer
acting reasonably under the circumstances.” Stutman, 95 N.Y.2d at 29. For example, Plaintiffs argue that Uphold
misrepresented the interest rates one could be paid from investing in Earn. (MTD Opp. 12–13 (citations omitted)).
One pleaded statement is that “users of CredEarn could ‘earn up to 10% on #crypto,’” while another is that “Cred
currently offers Uphold customers highly competitive rates . . . up to 12% APY.” (FAC ¶¶ 57(b)–(c).) Plaintiffs do
not allege that Earn customers could not receive these interest rates or that Earn never paid out any customers at
these interest rates. Cf. Stutman, 95 N.Y.2d at 31 (affirming dismissal of a GBL § 349 claim on a motion to dismiss
where “[t]he nub of plaintiffs’ complaint is that the $275 ‘attorney’s fee’ was really a prepayment charge in
disguise,” but finding that “plaintiffs have not demonstrated that the fee was a prepayment charge.”).
Similarly, Plaintiffs argue that Uphold misled customers into having a “false sense of safety and security” about
Earn by issuing a 2018 press release stating that the then-yet-to-be-launched Uphold Earn product “functions much
like a traditional banking product.” (See MTD Opp. 11; FAC ¶ 30 (emphasis removed)). However, Plaintiffs fail to
“allege in any detail how this use was false or misleading, but rather, rely on conclusory statements in the [FAC].”
Compare Tabor v. Bodisen Biotech, Inc., 579 F. Supp. 2d 438, 452 (S.D.N.Y. 2008) (finding “[p]laintiffs have failed
to satisfy their pleading burden” showing how “Bodisen’s repeated use of the term ‘Biotech’ was materially false
and misleading”), with Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004) (in a securities case, “plaintiffs must do
more than say that the statements in the press releases were false and misleading; they must demonstrate with
specificity why and how that is so.”). Plaintiffs have pleaded no facts and have provided no explanation as to why a
reasonable consumer would have construed the phrase “functions like a traditional banking product” as some
assurance of Earn’s safety as an investment vehicle.
17
However, Plaintiffs also plead a disclaimer that Uphold customers read before being
“funneled . . . to the Cred website,” which is where they actually bought into Earn. (Id. ¶ 70.)
This disclaimer, which is pictured in full supra p.5, states, among other things,
Any agreement you enter into with CRED LLC will not amend, replace or
supersede any existing agreement(s) with Uphold that you may have. Uphold will
not be a party or third-party beneficiary to any agreement you may have with CRED
LLC and will have no liability for any transactions initiated by you with or through
CRED LLC. . . . . Uphold is not a lender, loan broker, or loan arranger with respect
to the Cred Program and is not offering anyone advice or assistance to any person
with respect to the CredEarn Program or the Cred Program.
(Anderson Decl. Ex. 3.) The disclaimer covers the entire center of the webpage a customer
would see before being redirected to Cred’s website, and a customer would only be redirected if
a customer clicked a button reading “Continue” at the bottom of the disclaimer. (See Id.)
Under the facts of the case as pleaded, then, the disclaimer “addresses the precise
deception” by dispelling Plaintiffs’ theory that Uphold created the “overall impression” that Earn
was an Uphold product. Cf. Matthew Bender & Co., 37 N.Y.3d at 180–181. In spite of
Plaintiffs’ characterizing the disclaimer as “boilerplate,” (MTD Opp. 19), the language speaks
precisely to the reality that buying into Earn was a “transaction initiated by [the customer] with
or through Cred LLC,” and that “Uphold will have no liability for any [such] transaction,” (FAC
¶ 71). 17 Especially given that the disclaimer appears with a bolded heading reading “You are
about to be redirected to a third party site,” (Anderson Decl. Ex. 3), I find that, on the facts
This renders inapposite the line of cases, cited by Plaintiffs, in which disclaimers are held not to defeat a claim
because such disclaimers fail to “track[] the substance of the alleged misrepresentation.” (MTD Opp. 19 (quoting
Grumman Allied Indus., Inc. v. Rohr Indus, Inc., 748 F.2d 729, 735 (2d Cir. 1984).) The Grumman case itself found
a disclaimer effective to defeat a misrepresentation claim. 748 F.2d at 735. The only case about a disclaimer in the
GBL § 349 context that Plaintiffs cite found that the misleading practices at issue were “outside the scope of the
disclaimer” that defendants in that case raised. Watts v. Jackson Hewitt Tax Serv., Inc., 579 F. Supp. 2d 334, 348
(E.D.N.Y. 2008). As discussed, Uphold’s disclaimer speaks to the reality that buying into Earn meant doing
business with a third party—Cred—and not with Uphold.
17
18
before me, “a reasonable consumer acting reasonably under the circumstances” would not have
been misled into thinking he was about to do business with Uphold despite the disclaimer to the
contrary. See Oswego, 85 N.Y.2d at 26; see also, e.g., Chufen Chen v. Dunkin’ Brands, Inc., 954
F.3d 492, 501 (2d Cir. 2020) (“there can be no section 349(a) claim when the allegedly deceptive
practice was fully disclosed” in the advertisements (internal citation omitted)); Bowring v.
Sapporo U.S.A., Inc., 234 F. Supp. 3d 386, 391 (E.D.N.Y. 2017) (finding that a reasonable
consumer would not be misled where the alleged deceptions “are eclipsed by the accurate
disclosure statement” on the packaging); Nelson v. MillerCoors, LLC, 246 F. Supp. 3d 666, 676
(E.D.N.Y. 2017) (finding disclaimer on product label warranted dismissal where product
“utilize[d] no exterior packaging that would obstruct the disclaimer” (internal quotation marks
omitted)); Fermin v. Pfizer Inc., 215 F. Supp. 3d 209, 212 (E.D.N.Y. 2016) (dismissing
plaintiffs’ claim that the different sizing of the ibuprofen packaging was misleading because
“[p]laintiffs provide no basis for disregarding the clearly stated pill-counts on the labels”).
In particular, given that the applicable law considers “deceptive” those “acts and
practices” that are “likely to mislead a reasonable consumer acting reasonably under the
circumstances,” in this case, the question becomes whether “a reasonable consumer in
[P]laintiff[s’] circumstances” of considering purchasing Cred—a product that promised
anywhere from a 10% to 13% “guaranteed return,” (FAC ¶ 78)—“might have been misled by
[Uphold]’s conduct.” Oswego, 85 N.Y.2d at 26–27. How this standard applies varies with
products and with contexts. See, e.g., id. at 27 (“the [defendant]’s liability under [GBL § 349]
will depend, in part, on whether plaintiffs possessed or could reasonably have obtained the
relevant information they now claim the Bank failed to provide” regarding the applicable interest
rates on their accounts); Daniel v. Mondelez Int’l, Inc., 287 F. Supp. 3d 177, 194 n.16 (E.D.N.Y.
19
2018) (in food packaging case, “consumers only care about density of packaging as it relates to
the amount or quantity of product”); Waldman v. New Chapter, Inc., 714 F. Supp. 2d 398, 403
(E.D.N.Y. 2010) (“Plaintiff pleads nothing to suggest that she, or other class members, cared
about [the packaged food product’s] density.”). Here, Plaintiffs plead nothing about what a
reasonable consumer of an investment product with a high “guaranteed return” would care about,
or the other materials about the Earn product that were available to them before they entered into
their transactions with Cred. Indeed, Plaintiff alleges nothing about transacting with Cred at
all—there are no allegations as to any disclosures Cred made or the documents that governed any
agreements Plaintiffs entered into with Cred. As such, I cannot find that Plaintiffs were
confronted with statements that could have misled a reasonable consumer acting reasonably
under these circumstances.
Plaintiffs also argue that Uphold is liable under GBL § 349 because it failed to disclose
its “superior knowledge . . . about the dire financial conditions at Cred” while it was still
promoting Earn. (MTD Opp. 13.) “To determine whether a plaintiff has specifically alleged
defendants’ knowledge of facts or access to information contradicting their public statements,
Second Circuit cases uniformly rely on allegations that (1) specific contradictory information
was available to the defendants (2) at the same time they made their misleading statements.” In
re PXRE Grp., Ltd., Sec. Litig., 600 F. Supp. 2d 510, 536 (S.D.N.Y. 2009) (Sullivan, J.) (internal
citations and quotation marks omitted) (emphasis in original); see also Novak v. Kasaks, 216
F.3d 300, 309 (2d Cir. 2000) (“Where plaintiffs contend defendants had access to contrary facts,
they must specifically identify the reports or statements containing this information.”).
Here, Plaintiffs have pleaded that Uphold stated publicly it knew nothing about Cred’s
moribund financial situation until October 23, 2020, at which point it had already discontinued
20
access to Earn. (FAC ¶¶ 65–68.) Plaintiffs argue in their pleadings that Uphold had access to
some further information about Cred because it “assisted in Cred’s operations” and “acted as
Cred’s custodial wallet,” (id. ¶¶ 49–50), 18 but this is an argument of “little more than
[d]efendants ‘must have known’ based on their roles,” which is insufficient. Sjunde AP-Fonden
v. Gen. Elec. Co., 417 F. Supp. 3d 379, 403 (S.D.N.Y. 2019). 19
c. Plaintiffs’ Fraud/Fraudulent Concealment Claim is Dismissed
Because I find that Plaintiffs have failed to plead a “material misrepresentation for
purposes of GBL []§ 349,” their fraud/fraudulent concealment claim also fails. See Tootsie Roll
Indus., 2018 WL 3650015, at *15 (internal quotation marks omitted). Therefore, Uphold’s
motion to dismiss Plaintiffs’ third claim for relief is GRANTED, and the claim must be
dismissed.
B. Plaintiffs’ Unjust Enrichment Claim
“To state a claim for unjust enrichment under New York law, a plaintiff must allege that
‘(1) the defendant was enriched, (2) at the expense of the plaintiff, and (3) it would be
inequitable to permit the defendant to retain that which is claimed by the plaintiff.’” Koenig, 995
F. Supp. 2d at 290 (quoting Baron v. Pfizer, Inc., 42 A.D.3d 627, 629 (3d Dep’t 2007)).
18
Plaintiffs’ pleadings about Uphold’s relationship with Cred all appear drawn from the Examiner’s Report. (See
Examiner’s Report 19 (“For Cred, Uphold assisted with operations and acted as its customer wallet.”).) Neither
Plaintiffs nor the Examiner’s Report proffer any facts suggesting that Uphold’s relationship with Cred would have
allowed it access to information about Cred’s financial struggles.
19
This same reasoning forecloses Plaintiffs’ argument that Uphold had knowledge about Cred because Cred’s CEO
sat on Uphold’s board of directors, (FAC ¶¶ 46, 48), as Plaintiffs plead no facts and offer no law suggesting that
Uphold would have had knowledge of or even access to Cred’s true financial condition prior to when Uphold made
its October 2020 announcement about Earn. See In re Morgan Stanley Derivative Litig., 542 F. Supp. 2d 317, 322
(S.D.N.Y. 2008) (rejecting “isolated and conclusory references to the board’s concealment of, or failure to disclose”
certain information where “[t]here are no particularized allegations as to when any board member had
any knowledge of the Wells Notice, no allegations explaining any process by which the board decided to omit the
information, and no allegation that the board actively or purposefully made a decision to omit the information.”
(internal citation and quotation marks omitted)).
21
“An unjust enrichment claim is not available where it simply duplicates, or replaces, a
conventional contract or tort claim,” nor is it “a catchall cause of action to be used when others
fail.” Corsello v. Verizon New York, Inc., 18 N.Y.3d 777, 790–791 (2012).
Plaintiffs’ unjust enrichment claim is premised on their allegations that, by “[a]cting as
Cred’s custodial wallet with full control over the funds, Uphold improperly retained
consumers[’] funds after Cred’s collapse.” (MTD Opp. 21 (internal quotation marks omitted)
(citing FAC ¶¶ 13, 50.) Plaintiffs also argue that their claim is premised not just on “the interest
earnings Uphold promised them on their investment with Earn,” but also on allegations that
Uphold has “denied [Plaintiffs] access to their principal investments in Earn in their Uphold
wallets.” (Id.) In other words, Plaintiffs are using their unjust enrichment claim to seek the
money they invested in Earn due to Uphold’s purportedly misleading practices. However, their
unjust enrichment claim merely “duplicates” their GBL § 349 claim. Corsello, 18 N.Y. 3d at
790. 20 Therefore, it is DISMISSED.
C. Leave to Amend
Rule 15(a) provides that leave to amend a pleading should be “freely give[n] . . . when
justice so requires.” Fed. R. Civ. P. 15(a)(2). “Leave to amend, though liberally granted, may
properly be denied for: undue delay, bad faith or dilatory motive on the part of the movant,
repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the
20
Upon repleading, leave for which I grant infra, to the extent Plaintiffs are able to plead an unjust enrichment claim
that is not duplicative of their other claims, it may be the case that Cred’s bankruptcy prevents me from adjudicating
any unjust enrichment claim. For example, the court overseeing Cred’s bankruptcy has approved a stipulation
between Uphold and Cred premised on Uphold’s being “in possession of or [having] control[] [over] property of
[Cred],” including “certain crypto currency.” In re Cred Inc., Case No. 20-12836 (JTD), Doc. 373-1 (D. Del. Jan.
20, 2021). As such, if Plaintiffs’ repleaded unjust enrichment claim would require me to adjudicate Plaintiffs’ claim
to property within the Cred bankruptcy court’s exclusive jurisdiction, the parties should be prepared to brief whether
I can adjudicate such a claim notwithstanding any order of the Cred bankruptcy court or any stay order arising from
the Cred bankruptcy. See generally 11 U.S.C. § 362.
22
opposing party by virtue of allowance of the amendment, futility of amendment, etc.” Ruotolo v.
N.Y.C., 514 F.3d 184, 191 (2d Cir. 2008) (internal quotation marks omitted).
Plaintiffs conclude their opposition brief by requesting “leave to amend” “any part of the
Complaint [that] is subject to dismissal.” (MTD Opp. 25.) Uphold nowhere opposes Plaintiffs’
request. Accordingly, Plaintiffs’ request for leave to amend is GRANTED. However, Plaintiffs
may not replead their claim brought under consumer protection laws of states other than New
York, as doing so would be futile given the choice-of-law provision in Uphold’s Terms and
Conditions. See supra p. 10.
V.
Conclusion
For the foregoing reasons, Uphold’s motion to dismiss Plaintiffs’ Amended Complaint is
GRANTED. Plaintiff’s motion for judicial notice is also GRANTED. In addition, Plaintiffs’
request for leave to amend their First Amended Complaint is GRANTED. Plaintiffs must file a
second amended complaint within 28 days of entry of this Opinion & Order. The Clerk of Court
is respectfully directed to close the open motions at Docs. 14 and 19.
SO ORDERED.
Dated: March 27, 2024
New York, New York
______________________
Vernon S. Broderick
United States District Judge
23
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