Archer v. Coinbase, Inc.

53 Cal.App.5th 266

267 Cal.Rptr.3d 510

Darrell ARCHER, Plaintiff and Appellant,

v.COINBASE, INC., Defendant and Respondent.

A157690

Court of Appeal, First District, Division 1, California.

Filed August 10, 2020

Darrell Archer, in pro. per., for Plaintiff and Appellant

DLA Piper LLP (US), Matthew F. Miller, Michael J. Fluhr, Mandy Chan and Mustafa Moiz, San Franisco, for Defendant and Respondent.

Margulies, J. Plaintiff Darrell Archer filed suit against Coinbase, Inc. (Coinbase), an online digital currency exchange platform, alleging causes of action for breach of contract, negligence, and conversion stemming from Coinbase's purported refusal to allow him to access a "forked" cryptocurrency (Bitcoin Gold) stored in his Coinbase account. The trial court granted summary judgment for Coinbase. Plaintiff filed an appeal from the order granting summary judgment. We affirm.

I. BACKGROUND

Coinbase is an online digital currency platform that allows customers to send, receive, and store certain digital currencies. Plaintiff opened an account with Coinbase to allow him to purchase, trade, and store his digital currency.

A digital currency (also known as "cryptocurrency") is a type of currency maintained by a decentralized network of participants’ computers, rather than a centralized government or organization. Anyone can volunteer his or her computer to be part of such a network by running software that allows the computer to interact with the network. Once an individual joins a particular digital currency's network, he or she can interact with that digital currency. A holder of a digital currency can send it to another individual on the network, by authorizing that it be sent to the recipient's "public key," an alphanumeric string of characters that acts as a public identifier. Transactions between network participants are recorded on a "blockchain," which is a public ledger of digital currency transactions. Bitcoin is among the world's most well-known digital currencies, but there are thousands of digital currencies in existence. Each operates on its own unique network and blockchain ledger. Anyone can create a new digital currency, and new currencies are created almost daily.

On October 23, 2017, plaintiff had 350 Bitcoin stored in his account with Coinbase. That day, a third party launched a new cryptocurrency, "Bitcoin Gold," as a "fork." A fork is a way of creating a new digital currency by copying the source code of an existing digital currency's blockchain and repurposing it into a new digital currency network. When a developer creates a fork, the existing ledger of transactions from the original currency is used, and holders of the original currency are assigned equivalent units of the new currency on the new network. The new currency then "forks" into a separate blockchain ledger that records transactions of the new currency between participants in the new network.¹

When Bitcoin Gold was created, Coinbase monitored and evaluated Bitcoin Gold's network and decided it would not support the new currency. Coinbase informed its customers via its website: " ‘At this time, Coinbase cannot support Bitcoin Gold because its developers have not made the code available to the public to review. This is a major security risk.’ " In 2018, the Bitcoin Gold network was attacked by hackers who stole millions of dollars of funds from trading platforms and individuals on its network.

On March 27, 2018, plaintiff filed suit against Coinbase. Shortly thereafter, plaintiff filed a first amended complaint, alleging various causes of action based on Coinbase's failure and refusal to allow him to receive his forked Bitcoin Gold currency and Coinbase's retention of control over plaintiff's Bitcoin Gold for its own benefit. Coinbase filed a demurrer to the first amended complaint, and following the trial court's rulings on the demurrer, plaintiff was left with three causes of action: negligence, conversion, and breach of contract.

The trial court subsequently granted summary judgment for Coinbase on all three causes of action. The court concluded, "The fact that Coinbase's User Agreement with Plaintiff contains no provision requiring Defendant to provide services related to any particular digital currency created by a third party is dispositive, requiring the Court to grant this motion."

Specifically, the trial court granted summary judgment on plaintiff's breach of contract claim because plaintiff failed to establish the existence of an agreement by Coinbase to provide the Bitcoin Gold to him. Plaintiff's conversion claim failed because "the User Agreement did not create a right in Plaintiff to Bitcoin Gold, nor did it create an obligation in Defendant to support the Bitcoin Gold fork." The court also concluded conversion "requires ‘affirmative action to deprive another of property, not a lack of action,’ " and plaintiff had failed to demonstrate Coinbase acted in any way to deprive him of his Bitcoin Gold currency. Finally, the court rejected plaintiff's negligence claim based on the "economic loss rule," which the trial court held precludes liability for negligence based on obligations of contract, and because Coinbase had no legal duty to provide any services beyond those it agreed to provide in the user agreement.

Plaintiff appealed from the order granting summary judgment.²

II. DISCUSSION

A. Standard of Review

A "motion for summary judgment shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." ( Code Civ. Proc., § 437c, subd. (c).) "The moving party bears the burden of showing the court that the plaintiff ‘has not established, and cannot reasonably expect to establish, a prima facie case ....’ " ( Miller v. Department of Corrections (2005) 36 Cal.4th 446, 460, 30 Cal.Rptr.3d 797, 115 P.3d 77.) Once the moving party has met that burden, the burden shifts to the opposing party to show that a triable issue exists. ( Code Civ. Proc., § 437c, subd. (p)(2).)

We review an order granting summary judgment de novo. ( Yanowitz v. L'Oreal USA, Inc. (2005) 36 Cal.4th 1028, 1037, 32 Cal.Rptr.3d 436, 116 P.3d 1123.) "We liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party." ( Ibid. ; Brown v. Goldstein (2019) 34 Cal.App.5th 418, 432, 246 Cal.Rptr.3d 161.)

B. Breach of Contract

Plaintiff's first amended complaint alleged a contract was established between plaintiff and Coinbase when he opened his account and paid Coinbase for its services. According to plaintiff, the contract was based on Coinbase "holding itself out as a cryptocurrency trading and storage exchange and platform" and its representations "to provide the usual and customary services of a cryptocurrency exchange as is usual and customary in such industry." Coinbase breached the agreement "by failing to provide to plaintiff or allow to properly deposit to plaintiff's account" his forked Bitcoin Gold cryptocurrency.

In support of its summary judgment motion, Coinbase presented evidence that upon registering an account in February 2014, and again in April 2015, plaintiff signed a "User Agreement" with Coinbase (User Agreement).The User Agreement contains no provision requiring Coinbase to provide support or services related to any particular digital currency created by a third party. Coinbase also presented evidence that during discovery, when it asked plaintiff to identify the contractual language supporting his breach of contract claim, plaintiff responded: " ‘The contract is one provided by the laws of the State of California as applied to crypto currency exchanges and also a user agreement provided by Coinbase although a previous judge deemed that agreement as "garbage" there are still parts of it that can be applied to this lawsuit.’ "

In opposition, plaintiff conceded these facts were "undisputed," and argued his breach of contract claim was based not on a written agreement, but as alleged in his first amended complaint, on the "representations of the defendant in holding itself out as a cryptocurrency exchange and the representations to provide the usual and customary services in such industry."

We agree with the trial court that plaintiff's breach of contract claim fails because plaintiff did not establish the existence of an agreement with Coinbase to provide the Bitcoin Gold to him. ( Sonic Manufacturing Technologies, Inc. v. AAE Systems, Inc. (2011) 196 Cal.App.4th 456, 464, 126 Cal.Rptr.3d 301 [elements of breach of contract cause of action are existence of a contract, plaintiff's performance, the other party's breach, and damages]; Levy v. State Farm Mutual Automobile Ins. Co. (2007) 150 Cal.App.4th 1,5, 58 Cal.Rptr.3d 54 ( Levy ) [claim for breach of contract requires plaintiff specifically plead breach of agreed upon contractual provision].)It is undisputed that the User Agreement does not contain a provision requiring it to support or provide services for any particular digital currency created by a third party. Plaintiff also did not dispute he was aware at the time of the fork that Coinbase does not support every digital currency and that Coinbase has no duty or obligation to support every new digital currency that is created. Coinbase presented evidence it monitored and evaluated Bitcoin Gold's network when the new currency was created, determined the network was not stable or reliable, and issued a public statement that it would not support the new currency due to security concerns.³ Plaintiff did not identify any representations, oral or written, by Coinbase that it would support Bitcoin Gold, or that it would provide "usual and customary services."

On appeal, plaintiff argues the trial court erred in its interpretation of the User Agreement. First, plaintiff contends his "right and entitlement" to the Bitcoin Gold fork is established by his possession and...