Underwood v Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

2023 WL 1431965

Only the Westlaw citation is currently available.

United States District Court, S.D. New York.

Christopher UNDERWOOD et al., Individually and

on Behalf of All Others Similarly Situated, Plaintiffs,

COINBASE GLOBAL, INC., Coinbase,

Inc., and Brian Armstrong, Defendants.

21 Civ. 8353 (PAE)

Signed February 1, 2023

Attorneys and Law Firms

Steven Lawrence Bloch, Ian Wise Sloss, Silver Golub &

Teitell LLP, Stamford, CT, for Plaintiffs.

Jay B. Kasner, Abigail Elizabeth Davis, Alexander C.

Drylewski, Lara A. Flath, Skadden, Arps, Slate, Meagher &

Flom LLP, New York, NY, for Defendants.

OPINION & ORDER

PAUL A. ENGELMAYER, District Judge:

*1 This decision resolves a motion to dismiss a putative

class action brought under the federal securities laws

against defendants Coinbase Global, Inc., Coinbase, Inc.,

and Brian Armstrong (“Armstrong”) (collectively with

Coinbase Global, Inc., and Coinbase, Inc., “Coinbase” or

“defendants”).

Coinbase operates two online digital trading platforms on

which users can transact in the cryptoeconomy. The Amended

Complaint (“AC”), Dkt. 43, alleges that among the assets

that Coinbase enables customers to buy and sell on these

platforms are ones qualifying as securities. It alleges that these

include 79 digital assets known as the “Tokens.” It alleges

that, notwithstanding Coinbase's practice of transacting in

these securities with plaintiffs and other users, Coinbase is not

registered with the U.S. Securities and Exchange Commission

(“SEC”) as an exchange or broker-dealer.

On this basis, lead plaintiffs here—each of whom transacted

in the Tokens on the Coinbase platform—bring three sets

of claims: (1) under Section 12(a)(1) of the Securities Act

of 1933 (the “Securities Act”), for damages arising from

Coinbase's sale or solicitation of unregistered securities, AC

¶¶ 931–41; (2) under Section 29(b) of the Securities Exchange

Act of 1934 (the “Exchange Act”), arising from illegal

contracts Coinbase entered into with its users to purchase and

sell securities in violation of the Exchange Act's registration

requirements, id. ¶¶ 956–88; and (3) under state law, based

on Coinbase's sale of unregistered securities and failure to

control-person claims against Coinbase Global and its Chief

Executive Officer, Armstrong, who allegedly orchestrated

Coinbase's strategy to profit by violating the securities laws,

id. ¶¶ 942–55, 1002–15, 1038–49, 1094–1106. These claims

are brought on behalf of a nationwide class consisting of

all persons or entities who transacted in the Tokens on the

Coinbase trading platforms between October 8, 2019 and the

AC's filing on March 11, 2022 (the “class period”), and of

subclasses keyed to citizens of three states who so traded

during that period.

Pending now is defendants’ motion to dismiss the AC for

failure to state a claim under Federal Rules of Civil Procedure

12(b)(6) and 8(a). Dkt. 69. For the reasons that follow, the

Court grants in full the motion to dismiss. The Court dismisses

the federal claims with prejudice and the state claims without

prejudice.

I. Background

A. Factual Background

The summary is drawn from the AC. Dkt. 43. For

the purposes of resolving the motion to dismiss,

the Court presumes all well-pled facts to be true

and draws all reasonable inferences in favor of

plaintiffs. SeeKoch v. Christie's Int'l PLC, 699 F.3d

141, 145 (2d Cir. 2012).

1. Crypto-Assets and Blockchains

This case involves the modern financial concoctions known

as crypto-assets. Also sometimes called “cryptocurrencies,”

“tokens,” or “crypto-securities,” these are digital assets

created and traded in the digital world. AC ¶ 19. Crypto-

assets often rely on a technology known as “blockchain” to

“secure transactions, control the creation of additional units,

and verify their transfer.”See id. Blockchain is a digital ledger

system that tracks the ownership and transfer of different

kinds of crypto-assets. See id. ¶¶ 20–21.

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

*2 Users on the blockchain have a “public key” and a

“private key.” See id. ¶¶ 24–26. A user can publicly identify

herself to other users with her “public key,” which is akin to a

conventional bank account number an individual might share

with another who wishes to send the individual funds. See id.

¶¶ 24–25. A user also retains a “private key,” which is akin to

a pin code associated with the “bank account” public key. See

id. The blockchain makes use of the public keys and unique

addresses associated therewith to document transactions. See

id. ¶¶ 20–21. For example, with the well-known crypto-asset

known as “Bitcoin,” “[a] transfer of Bitcoin is public to the

extent that anyone can see the transferor's Bitcoin address,

the recipient's Bitcoin address, and the quantity of assets

transferred.” Id. ¶ 27. By tracking who owns any given unit

of a crypto-asset at any given time, the blockchain allows

for the secure exchange of crypto-assets, enabling users to

verify each transaction involving that particular unit. Id. ¶

22. This system, by documenting ownership, aims to prevent

counterfeiting. Id.

2. Crypto-Exchanges

The crypto-asset ecosystem depends on digital exchanges

known as “crypto-exchanges.” “Crypto-exchanges emerged

to enable smoother and faster trading between investors, just

as stock and commodities exchanges emerged to enable easy

trading of securities.” Id. ¶ 28. Crypto-exchanges come in two

primary forms: decentralized and centralized. Id. ¶ 29.

Decentralized exchanges use different approaches. “[W]hat

they have in common is that the crypto-assets are transferred

between individual accounts.” Id. ¶ 30. Such exchanges may

be analogized to Craigslist.com, the website that allows users

to match directly with other users to enable individualized

transactions. Seeid. ¶ 31. Decentralized exchanges, “like

Craigslist, do not own or hold the assets in question—they

simply provide a platform for exchanges between users, along

with some features designed to facilitate trading (for example,

Craigslist's creation and maintenance of message boards

organized by product type or a decentralized exchange's smart

contracts), possibly in exchange for advertising revenue or a

transaction fee.” Id.

Centralized exchanges play a more substantial role in

transactions between individuals. First, a customer must

“create an account” on the centralized exchange, Id. ¶

32. “The exchange will then provide that customer with

a deposit address that the exchange controls.” Id. Then

“[w]hen the customer deposits crypto-assets into that deposit

address, the exchange will credit her trading account with

the corresponding crypto-asset.” Id. “The exchange will

typically then transfer the crypto-assets into one of its other

addresses for storage.” Id. When that customer wants to make

a transaction—say, to transfer one Bitcoin to the address

of someone else—the centralized exchange “then debits the

[customer's] account and transfers a corresponding amount of

crypto-asset from the exchange's reserves to that address” of

the user with whom he or she wishes to transact. Id. ¶ 42.

3. The Coinbase Exchanges

Coinbase operates two digital asset trading exchanges:

Coinbase (the “Coinbase Platform”) and Coinbase Pro (the

“Coinbase Pro Platform”). Id. ¶ 5. The Coinbase Platform

is “marketed towards newer users,” id. ¶ 35, and “allows

users to place only market orders”—transactions of digital

assets “at the digital assets’ market price as displayed on the

Coinbase Platform at the time of placement of the order,”

id. The Coinbase Pro Platform, in contrast, “is designed for

use by advanced and active digital asset traders,” id. ¶ 37. It

“allows three types of orders: a market order, ... a limit order

to buy or sell a digital asset at a specific price or better, or a

stop order to buy or sell a digital asset if the market price of

the digital asset falls to a specified price.” Id.

The AC alleges that the Coinbase platforms operate as

centralized exchanges. Id. ¶¶ 32, 34. Trades “do not in fact

happen on the blockchain and do not actually involve the

transfer of any assets between users. Instead, it is Coinbase

that faces both the buyer and the seller.” Id. ¶ 33. If two users

wish to transact, each does so by transacting with Coinbase

directly—not with each other. Id. “Thus, if [a customer]

wishes to trade one Bitcoin for 10 Ethereum on Coinbase,

Coinbase will update its internal records to debit [that

customer's] account one Bitcoin and credit it 10 Ethereum;

no actual crypto-assets are moved on the blockchain.” Id.

Customers are charged fees on both Coinbase platforms. See

id. ¶¶ 34–40.

4. Coinbase's Alleged Failure to Register

as a Securities Exchange or Broker-Dealer

*3 The AC's central premise is that Coinbase lists and sells

securities but is not registered as a securities exchange or as

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

a broker-dealer. Plaintiffs purchased and sold the Tokens

on the Coinbase platforms during the Class Period,

id. ¶¶

1, 918–19, during which neither Coinbase Platform was

registered with the SEC as a securities exchange, id. ¶ 64;

see15 U.S.C. § 78c (registration requirements of “exchange”

under Exchange Act), or broker-dealer, AC ¶ 64; see15 U.S.C.

§ 78o(a)(1) (registration requirements for “brokers” and

“dealers” under Exchange Act), nor “subject to exemptions

from such registrations,” AC ¶ 5. “Because Coinbase brings

together buy and sell orders for the Tokens[,] and the Tokens

are securities,” id., the AC alleges, Coinbase “stands between

the buyer and seller in each trade on its platform, meaning that

is the actual seller of the unregistered securities that transact

each day on its platform,” id. ¶ 6.

Specifically, this action concerns the 79 digital

assets traded under the following symbols; 1INCH,

AAVE, ACH, ADA, AGLD, ALGO, AMP, ANKR,

ARPA, ATOM, AUCTION, AXS, BAL, BAND,

BAT, BNT, BOND, BTRST, CGLD, CLV, COMP,

CRO, CRV, CTSI, CVC, DNT, DOGE, DOT, ENJ,

EOS, FARM, FET, FIL, FORTH, GNT, GRT,

GTC, ICP, IOTX, KEEP, KNC, LINK, LOOM,

LRC, MANA, MATIC, MKR, MLN, NKN, NMR,

NU, OGN, OMG, ORN, OXT, PLA, POLY, QNT,

QUICK, RARI, REN, REP, RLC, SHIB, SKL,

SNX, SOL, STORJ, SUSHI, TRB, TRIBE, UMA,

UNI, XLM, XRP, XTZ, XYO, YFI, and ZRX

(collectively, the “Tokens”).

For each Token, the AC alleges that at least one

plaintiff has purchased or sold it during the Class

Period. See AC ¶¶ 77–908.

5. The Class Allegations

Plaintiffs bring this action as a putative class action under

Federal Rules of Civil Procedure 23(a) and 23(b)(3). Id. ¶ 917.

Plaintiffs seek certification of a nationwide class defined as

“all persons or entities who transacted in the Tokens on the

Coinbase Platform and/or the Coinbase Pro Platform during

the Class Period.” Id. ¶ 918. Plaintiffs also seek certification

of three subclasses: (1) “all persons or entities who transacted

in the Tokens on a Coinbase platform during the Class Period

while in the State of California”; (2) “all persons or entities

who transacted in the Tokens on a Coinbase platform during

the Class Period while in the State of Florida”; and (3) “all

persons or entities who transacted in the Tokens on a Coinbase

platform during the Class Period while in the State of New

Jersey.” Id. ¶ 919.

B. Procedural History

On October 8, 2021, three plaintiffs—Christopher

Underwood (“Underwood”) of Florida, Louis Oberlander

(“Oberlander”) of California, and Zeneyda Patin of New

York (collectively, the “original plaintiffs”)—initiated this

case by filing the Complaint, see Dkt. 1. On October 12,

2021, counsel for the original plaintiffs published the requisite

Private Securities Litigation Reform Act notice of this action

through PR Newswire. See Dkt. 18.

On December 13, 2021, two original plaintiffs—Underwood

and Oberlander—along with a new plaintiff, Henry

Rodriguez (“Rodriguez”), moved to be appointed lead

plaintiffs. Dkt. 15. On January 11, 2022, the Court granted

an unopposed motion to name Underwood, Oberlander, and

Rodriguez as lead plaintiffs and appoint Silver Golub &

Teitell LLP and Selendy & Gay as co-lead counsel. Dkt.

21. On January 28, 2022, plaintiffs moved for a temporary

restraining order regarding amendments to Coinbase's user

agreement that the original plaintiffs represented were to take

place on January 31, 2022, and stood to affect the pending

litigation. See Dkts. 24–26. On January 30, 2022, Coinbase

opposed the motion, see Dkts. 28–30, to which the original

plaintiffs replied that same day, see Dkts. 31–32.

On February 4, 2022, the Court held a hearing on the

motion for injunctive relief. There, defendants agreed to drop

any reliance on the new January 2022 dispute resolution

provisions altogether for the purposes of this litigation, that

is, as these provisions might apply to any named plaintiff or

putative class member extant as of February 4, 2022. Such

mooted plaintiffs’ bid for emergency relief. See Dkt. 41 at

28–32 (hearing transcript). At the hearing, plaintiffs’ counsel

stated that plaintiffs intended to file an amended complaint

with additional federal claims under the Securities Act. Seeid.

at 34.

*4 On February 7, 2022, the parties filed a proposed

stipulation, Dkt. 38-1, that defendants would not seek to

enforce alternative dispute resolution provisions of the user

agreement against plaintiffs in this or any related action, seeid.

at 2, and the Court entered the stipulation, Dkt. 39.

On March 11, 2022, Underwood, Oberlander, and Rodriguez

filed the AC. Dkt. 43. It changed plaintiffs’ claims in nature

and scope by, inter alia, (1) adding Coinbase, Inc. as a

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

defendant; (2) adding to the digital assets within the scope

of the lawsuit, in connection with the addition of Rodriguez

as a named plaintiff; and (3) adding federal claims, including

those relating to control-person liability, and state claims.

Compare Dkt. 1, with AC.

On May 10, 2022, defendants moved to dismiss the AC in its

entirety. See Dkts. 58–60. On July 11, 2022, plaintiffs filed an

opposition. See Dkts. 62–63. On August 5, 2022, defendants

replied. See Dkts. 67–68.

II. Legal Standards Governing the Motion to Dismiss

To survive a motion to dismiss under Rule 12(b)(6), a

complaint must plead “enough facts to state a claim to relief

that is plausible on its face.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

A claim is facially plausible “when the plaintiff pleads

factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct

alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937,

173 L.Ed.2d 868 (2009). A complaint is properly dismissed

where, as a matter of law, “the allegations in a complaint,

however true, could not raise a claim of entitlement to relief.”

Twombly, 550 U.S. at 558, 127 S.Ct. 1955. When resolving

a motion to dismiss, the Court must assume all well-pleaded

facts to be true, “drawing all reasonable inferences in favor

of the plaintiff.” Koch, 699 F.3d at 145. That tenet, however,

does not apply to legal conclusions, SeeIqbal, 556 U.S. at

678, 129 S.Ct. 1937. Pleadings that offer only “labels and

conclusions” or “a formulaic recitation of the elements of a

cause of action will not do,”Twombly, 550 U.S. at 555, 127

S.Ct. 1955.

III. Discussion

The Court first considers the AC's claims under the Securities

Act, then those under the Exchange Act, and then its state-law

claims, Relevant to all is a single premise—that the Tokens

are securities. The AC alleges that each of the 79 Tokens is

a security pursuant to the Securities Act, the Exchange Act,

and the test articulated for “investment contracts” in SEC v.

W.J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244

(1946), In support, the AC, for each Token, alleges that this

digital asset has characteristics indicative of a security. To

this end, the AC alleges how the Token was introduced to

the public; whether investors expected to receive profits from

it; whether any marketing has been performed for it, and if

so, by whom; which entities, if any, centrally manage it; and,

during the Class Period, which plaintiffs engaged in “losing

transactions” involving it. See, e.g., AC ¶¶ 86–90 (for Token

AAVE), 338–50 (for Token DOGE), 452–87 (for Token ICP).

Were this case to reach summary judgment, this contention

would emerge as a central battleground, Defendants maintain

that “[t]he Tokens are not ‘securities,’ ” for reasons that, they

state, “will become evident if this case proceeds.” Dkt, 59

(“Defs. Mem.”) at 1 n.2. However, defendants state, in light

of other dispositive arguments—and presumably because

whether the Tokens are securities presents a question of fact

more suitably litigated at summary judgment—“the Court

need not address this issue for purposes of this motion.” Id.

In the analysis that follows, the Court accordingly assumes

arguendo, as do the parties in their briefing, that the Tokens

are bona fide securities.

A. Claims Under the Securities Act

*5 The AC brings two claims under the Securities Act: in

Count One, for the offer and sale of unregistered securities

against Coinbase Global, Inc. and Coinbase, Inc., under

Sections 5 and 12(a) of the Securities Act, see AC ¶¶ 931–

42; see also15 U.S.C. §§ 77e(a), 77e(c), 77l(a)(1); and, in

Count Two, for control-person liability by Coinbase Global,

Inc. and Brian Armstrong, under Section 15 of the Securities

Act, based on the violations in Count One, see AC ¶¶ 942–55;

see also15 U.S.C. § 77o(a). Because Count Two is derivative

of Count One, the Court addresses Count One first.

1. Allegations Relating to the Offer

and Sale of Unregistered Securities

a. Applicable Legal Standards

Sections 5(a) and (c) of the Securities Act prohibit any

person from selling unregistered securities using any means

of interstate commerce unless the securities are exempt from

registration. 15 U.S.C. § 77e(a), (c). To prove a violation of

Section 5, the plaintiff must show that “(1) no registration

statement was in effect for the securities at issue; (2) the

defendant sold or offered the securities; and (3) interstate

transportation, communication, or the mails were used in

connection with the offer or sale.” SEC v. Sason, 433 F. Supp.

3d 496, 513 (S.D.N.Y. 2020). If the plaintiff meets this prima

facie burden, the burden shifts to the defendant to show that

an exception applies. Id. Section 5 is a strict liability statute

that does not require a showing of scienter or negligence. SEC

v. Bronson, 14 F. Supp. 3d 402, 408 (S.D.N.Y. 2014).

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

Section 12(a)(1) of the Securities Act creates a private right

of action for the purchaser against the seller in any transaction

that violates Sections 5(a) or (c). 15 U.S.C. § 77l(a)(1). It

includes the right to sue for damages or rescission. See,

e.g., Fed. Hous. Fin. Agency for Fed. Nat'l Mortg. Ass'n

v. Nomura Holding Am., Inc., 873 F.3d 85, 137 (2d Cir.

2017) (“A buyer who retains ownership over the security

may sue under Section 12 for equitable rescission, which

limits recovery to ‘the consideration paid for such security.’

” (quoting 15 U.S.C. § 77l(a))). “[T]he list of potential

defendants in a section 12(a)[(1)]

case is governed by a

judicial interpretation of section 12 known as the ‘statutory

seller’ requirement.” In re Morgan Stanley Info. Fund Sec.

Litig., 592 F.3d 347, 359 (2d Cir. 2010).

The Second Circuit has held that the identical

language in Section 12(a)(2) has the same meaning,

and therefore applies Pinter to Section 12(a)(1) and

12(a)(2) claims alike. SeeCortec Indus., Inc. v. Sum

Holding L.P., 949 F.2d 42, 49 (2d Cir. 1991); Capri

v. Murphy, 856 F.2d 473, 478 (2d Cir. 1988); Steed

Fin. LDC v. Nomura Sec. Int'l, Inc., No. 00 Civ.

8058 (NRB), 2001 WL 1111508, at *7 (S.D.N.Y.

Sept. 20, 2001).

Under the Supreme Court's decision in Pinter v. Dahl,

an individual is a “statutory seller” under either of two

scenarios. 486 U.S. 622, 642, 647, 108 S.Ct. 2063, 100

L.Ed.2d 658 (1988). First, liability attaches if the defendant

“passed title, or other interest in the security, to the buyer for

value”; such “imposes liability on only the buyer's immediate

seller; remote purchasers are precluded from bringing actions

against remote sellers. Thus, a buyer cannot recover against

his seller's seller.” Id. at 642, 644 n.21, 108 S.Ct. 2063.

Second, liability attaches if the defendant “successfully

solicit[ed] the purchase [of a security], motivated at least in

part by a desire to serve [its] own financial interests or those of

the securities’ owner.” Id. at 647, 108 S.Ct. 2063; see alsoIn

re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 359.

*6 In sum, plaintiffs may recover from defendants under

Section 12(a)(1) only if: (1) defendants were the direct

sellers of the Tokens to plaintiffs; or (2) defendants actively

solicited the sale of the Tokens to plaintiffs and did so for

financial gain. Defendants challenge the adequacy of the AC's

pleadings under each theory.

b. Pinter’s First Prong: Whether

Coinbase Passed Title to the Tokens

Plaintiffs argue that the AC adequately alleges that Coinbase

is a statutory seller under Pinter’s first prong—that is, that

Coinbase “passed title, or other interest” in the Tokens as the

“immediate seller.” Pinter, 486 U.S. at 642, 644 n.21, 108

S.Ct. 2063. This theory pivots on the factual premise that

Coinbase, as opposed to some other “selling” party, held title

to the Tokens at the time of these transactions.

Relevant to this point, the AC alleges that Coinbase “place[s]

all deposited assets into a centralized wallet,” AC ¶ 34,

thereby controlling the title to all the digital assets. As a result,

it alleges, in every transaction involving these digital assets,

“[t]he only blockchain address with which a customer ever

interacts is the wallet deposit address provided by Coinbase

itself and that Coinbase owns.” Dkt. 62 (“Pl. Opp”) at 6;

see AC at 32. The AC thus posits that, in these transactions,

Coinbase transacts with the user—as opposed to two users

transacting with each other. “The buyer and seller are not in

privity with one another,” the AC alleges, AC ¶ 910; each

instead is in privity with Coinbase. It alleges that a Coinbase

user who wishes to make a transaction “never interacts with ...

[an]other user, sends no asset to the other user, receives no

asset from the other user, and has no blockchain-recorded

interaction with the other user.” Pl. Opp. at 6. Based on the

premise that “[c]ustomers on Coinbase transact solely with

Coinbase itself,” it alleges, “Coinbase is thus a seller of the

Tokens.” AC ¶ 936 (emphasis added).

These allegations would ordinarily assist plaintiffs in pleading

this theory. But plaintiffs’ bid is complicated because the AC's

above allegations effectively repudiate diametrically contrary

allegations in plaintiffs’ original Complaint, in an apparent

attempt to evade dismissal.

Ordinarily, an amended complaint “supersedes the original,

and renders it of no legal effect.” Dluhos v. Floating &

Abandoned Vessel, Known as N.Y., 162 F.3d 63, 68 (2d

Cir. 1998) (internal quotation marks omitted). However,

“where allegations in an amended pleading directly contradict

pleadings in the original complaint, courts have disregarded

the amended pleading.” Wheeler v. Slanovec, No. 16 Civ.

9065 (KMK), 2019 WL 2994193, at *6 (S.D.N.Y. July 9,

2019) (cleaned up); see alsoPoindexter v. EMI Rec. Grp.

Inc., No. 11 Civ. 559 (LTS) (JLC), 2012 WL 1027639, at

*2 (S.D.N.Y. Mar. 27, 2012) (“[E]ven though the Amended

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

Complaint is the operative pleading, the Court may still

credit admissions in the original complaint and attached

exhibits.”); Kilkenny v. L. Off. of Cushner & Garvey, L.L.P.,

No. 08 Civ. 588 (KMK), 2012 WL 1638326, at *5 (S.D.N.Y.

May 8, 2012) (“[A] court may disregard amended pleadings

when they directly contradict facts that have been alleged in

prior pleadings.”). As the Second Circuit has put the point:

“A party ... cannot advance one version of the facts in its

pleadings, conclude that [his] interests would be better served

by a different version, and amend its pleadings to incorporate

that version, safe in the belief that the trier of fact will never

learn of the change in stories.” United States v. McKeon, 738

F.2d 26, 31 (2d Cir. 1984); cf.Andrews v. Metro N. Commuter

R. Co., 882 F.2d 705, 707 (2d Cir. 1989) (district court's

failure to permit jurors to examine original complaint, where

amended complaint was in contradiction, was substantial

abuse of discretion).

*7 Such is the case here. Although the AC casts Coinbase

as the only counterparty to each transaction, see AC ¶¶ 6, 32–

33, 910, 936, and as title holder to the Tokens, seeid. ¶ 34,

the Complaint painted a very different portrait of Coinbase,

with factual allegations that undermine the AC's thesis that

Coinbase was a statutory seller. That is so in two respects.

Privity: The Complaint's factual allegations directly

contradict the AC's claim that privity existed only between

Coinbase and users, and not between users for the purposes

of any individual transaction. It alleged that “[o]nce money

or digital assets had been sent to the Coinbase Platform and

credited to the wallet of a Coinbase Platform user, a Coinbase

Platform [user] can enter into trade agreements with other

Coinbase Platform users for purchases and sales of digital

assets.” Compl. ¶ 27 (emphasis added); see alsoid. ¶ 32 (same

allegation for Coinbase Pro platform). This allegation is flatly

opposite to the Amended Complaint's allegation that “[t]he

buyer and seller are not in privity with one another,” AC ¶

33, and that “[c]ustomers on Coinbase transact solely with

Coinbase itself,” AC ¶ 936 (emphasis added).

Title: The Complaint's factual allegations about who holds

title to the Tokens also conflict with those in the AC.

The Complaint makes these allegations by referencing

and incorporating the December 2020 version of the user

agreement between Coinbase users and defendants, see Dkt.

26-3 (December 2020 version) (the “User Agreement”).

That agreement is cognizable here for two reasons.

First,

the Complaint states that “Coinbase entered into contracts

[with plaintiffs] via the Coinbase User Agreement ... pursuant

to which [p]laintiffs purchased Digital Asset Securities,”

Compl. ¶ 273, and asserts claims based on this contractual

relationship between plaintiffs and Coinbase, see id. ¶¶ 262–

68, The User Agreement is thus “incorporated by reference,”

DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d

Cir. 2010). Insofar as plaintiffs sought contractual recission

of the transactions, the contractual obligations between

Coinbase and plaintiffs—as set out in the User Agreement

—are central to plaintiffs’ claims in the Complaint, which

“rel[ies] on the terms and effect of” the User Agreement

“in drafting the Complaint,” Chambers v. Time Warner, Inc.,

282 F.3d 147, 153 (2d Cir. 2002). Second, the Court “may

consider any written instrument attached to the complaint,

statements or documents incorporated into the complaint by

reference, legally required public disclosure documents filed

with the SEC, and documents possessed by or known to the

plaintiff and upon which it relied in bringing the suit.” ATSI

Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.

2007) (emphasis added); seeSun Micro Med. Techs. Corp. v.

Passport Health Commc'ns, Inc., No. 06 Civ. 2083 (RWS),

2007 WL 2230082, at *3 (S.D.N.Y. Aug. 2, 2007) (“When

ruling on a motion to dismiss, the Court may take judicial

notice of ... items in the record of the case.”). The User

Agreement was put on the case record by plaintiffs, soon after

they filed the Complaint, in seeking emergency relief. See

Dkt. 26; see alsoAvila v. Comm'r of Soc. Sec., No. 15 Civ.

2456 (JGK), 2016 WL 1562944, at *1 (S.D.N.Y. Apr. 18,

2016). They sought to enjoin defendants from enforcing an

updated user agreement against plaintiffs with respect to its

dispute resolution provisions, which directed disputes of this

nature to mandatory arbitration, See Dkt. 38-1. In so doing,

plaintiffs asserted the primacy of the pre-January 31, 2022

user agreement (that is, the agreement from December 20,

2020). Plaintiffs thus both “possessed,” ATSI Commc'ns, Inc.,

493 F.3d at 98, that agreement, see Dkt. 26-3, and “relied [on

it] in bringing the suit” in this Court, ATSI Commc'ns, Inc.,

493 F.3d at 98. They “cannot plead around it by refusing to

make reference to it” in the AC. Van Houtven v. Adams, No.

13 Civ. 1964 (CM), 2014 WL 1338066, at *2 (S.D.N.Y. Apr.

3, 2014), aff'd, 605 F. App'x 37 (2d Cir. 2015).

In briefing on the motion to dismiss, the parties

dispute whether the User Agreement binds the three

lead plaintiffs, inasmuch as the plaintiffs created

accounts at different times in the years before this

litigation, and defendants periodically updated and

revised the user agreement. See Pl. Opp. at 12–16;

Dkt. 67 at 2–5. In resolving the motion, the Court's

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

charge is not to make a plaintiff-specific inquiry

as to the operative agreement. SeeSchnabel v.

Trilegiant Corp., 697 F.3d 110, 113 (2d Cir. 2012).

The Court is instead to accept plaintiffs’ well-pled

allegations as true. Here, the Complaint expressly

references the User Agreement as covering the

class period;

During the Class Period, Coinbase entered into

contracts with issuers of Digital Asset Securities

Coinbase and made available for sale the

issuer's Digital Asset Securities on Coinbase's

unregistered exchanges, in violation of Section

5 of the Exchange Act. Additionally, Coinbase

entered into contracts via the Coinbase User

Agreement, with Plaintiffs and the members of

the Class and Subclasses, pursuant to which

Plaintiffs purchased Digital Asset Securities

through Coinbase and paid Coinbase fees for

the use of its securities exchanges despite their

lack of registration with the SEC in violation of

section 5 of the Exchange Act.

Compl. ¶¶ 272–73 (emphases added). The AC

again eludes these issues, by eliminating all

references to the User Agreement, And insofar as

plaintiffs argue that considering the Complaint and

User Agreement would unfairly injure Rodriguez,

the new plaintiff the AC added to succeed an

earlier plaintiff, that is wrong, as plaintiffs do not

—and cannot—dispute that the plaintiff added by

the AC “ha[d] his interests adequately represented

by someone with the same interests who [was] a

party.” Ortiz v. Fibreboard Corp., 527 U.S. 815,

846, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999). The

Court therefore considers the December 2020 User

Agreement in effect during the Class Period, as

cited in the Complaint. The predecessor versions

contain substantially similar relevant language.

See, e.g., Dkt. 35-16 (January 2019 user agreement

version).

*8 The User Agreement's terms flatly contradict the AC's

allegations that Coinbase holds title to the digital assets. The

User Agreement—in language directed to the user—states

that “[t]itle to Digital Currency shall at all times remain with

you and shall not transfer to Coinbase.” User Agreement §

2.6.1. It adds: “You control the Digital Currencies held in your

Digital Currency Wallet.” Id. § 2.6.2.

The User Agreement also reinforces the Complaint's pleading

that, by using Coinbase, the user does not transact directly

with, or pass title to or from, a Coinbase entity when they

purchase a Token. It states: “When you purchase (buy) or sell

Digital Currency on the Coinbase Site, you are not buying

Digital Currency from Coinbase or selling Digital Currency

to Coinbase. Coinbase acts as the agent, transacting on your

behalf, to facilitate that purchase or sale between you and

other Coinbase [Inc.] customers.” Id. § 3,2.

For these reasons, the Court need not, and does not, accept

the AC's contrary allegations, which unavoidably emerge as

strategically added to elude the facts pled in the Complaint

and contained in the User Agreement that checkmate

plaintiffs from adequately pleading the first prong of Pinter’s

statutory seller inquiry. “While the Court must accept the facts

as alleged in the complaint, when any allegations contradict

the evidence contained in the document[ ] relied upon by ...

plaintiff[s], the document[ ] control[s], and the Court need not

accept the allegations contained within the complaint as true.”

Trahan v. Lazar, 457 F. Supp. 3d 323, 341 (S.D.N.Y. 2020)

(internal quotations omitted). And “where allegations in an

amended pleading directly contradict pleadings in the original

complaint, courts have disregarded the amended pleading.”

Wheeler, 2019 WL 2994193, at *6 (cleaned up). The Court

therefore declines to credit the AC's allegations as to privity

and title.

Without these allegations, the AC fails to plead the first prong

of Pinter’s statutory seller inquiry. The Court cannot credit the

AC's allegations that privity was solely between defendants

and plaintiffs for each of the transactions at issue, nor can

it credit the AC's allegations to the effect that defendants,

as opposed to the sellers, held title to the assets that were

the subjects of these transactions. Such is clear, in fact,

from a recent on-point decision from this District, resolving

a motion to dismiss a complaint against a crypto currency

digital exchange alleged to be a Section 12 statutory seller.

That decision, by Judge Carter, resolved a motion to dismiss

on a similar theory, litigated during the period spanning the

filing of the AC here. SeeAnderson v. Binance, No. 20 Civ,

2803 (ALC), 2022 WL 976824, at *3 n.2 (S.D.N.Y. Mar,

31, 2022). In the pertinent part of the analysis in Binance,

Judge Carter rejected the theory that a digital exchange was

a “statutory seller[ ] because [it] passed title to Plaintiffs,”

noting that the complaint's factual allegations did not support

this assertion. The same is so here.

The Court accordingly—holding plaintiffs to the allegations

in their Complaint and to the provisions of the User

Agreement that the Complaint incorporates—holds that

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

plaintiffs have not pled that Coinbase either qualified as

the user's “immediate seller,” Pinter, 486 U.S. at 642, 108

S.Ct. 2063, or “passed title, or other interest in the security,

to the buyer for value,” id. at 644 n.21, 108 S.Ct. 2063.

Because “remote purchasers are precluded from bringing

actions against remote sellers” and “a buyer cannot recover

against his seller's seller,” id., the AC fails Pinter’s first

requirement.

c. Pinter’s Second Prong: Whether

Coinbase Solicited the Transactions

*9 Plaintiffs argue that the AC adequately alleges that

Coinbase solicited plaintiffs’ purchases of the Tokens. See

Pl. Opp. at. 17. In Pinter, the Supreme Court narrowly

construed “solicitation” under the Securities Act, mindful

that “Congress did not intend to impose rescission based

on strict liability on a person who urges the purchase but

whose motivation is solely to benefit the buyer.” Pinter, 486

U.S. at 647, 108 S.Ct. 2063. The Court reasoned: “When a

person who urges another to make a securities purchase acts

merely to assist the buyer, not only is it uncommon to say

that the buyer ‘purchased’ from him, but it is also strained

to describe the giving of gratuitous advice, even strongly or

enthusiastically, as ‘soliciting.’ ” Id.

To hold a defendant liable under Section 12 as a seller,

a purchaser such as plaintiffs must, therefore, demonstrate

its direct and active participation in the solicitation of the

immediate sale. See, e.g., Capri, 856 F.2d at 478–79 (plaintiffs

must show that the particular defendant actually solicited their

investment); Holsworth v. BProtocol Found., No. 20 Civ.

2810 (AKH), 2021 WL 706549, at *3 (S.D.N.Y. Feb. 22,

2021) (dismissing Section 12 claim where plaintiff failed to

allege that he “was directly contacted by Defendants or that

he purchased securities as a result of any active solicitations

by Defendants”); Alpha Cap. Anstalt v. Intellipharmaceutics

Int'l Inc., No. 19 Civ. 9270 (DLC), 2020 WL 3318029, at

*4 (S.D.N.Y. June 18, 2020) (“[P]laintiffs must show that

[defendant] actually solicited their investment.”); Griffin v.

PaineWebber, Inc., No. 99 Civ. 2292 (VM), 2001 WL 740764,

at *2 (S.D.N.Y. June 29, 2001) (“[Plaintiff] must allege not

only that [defendant] actively solicited investors with respect

to this transaction but that he purchased securities as a result

of [the] solicitation.”).

Measured against that standard, the AC's allegations

regarding Coinbase's “solicitation” of the transactions

involving the Tokens fail, because they do not describe

conduct beyond the “collateral” participation that Pinter

and its progeny exclude from Section 12 liability. Wilson

v. Saintine Expl. & Drilling Corp., 872 F.2d 1124, 1125

(2d Cir. 1989) (“[C]ollateral participants who do not solicit

sales cannot be liable under Section 12(1) ....”). The AC

alleges that Coinbase was an exchange that “promote[d]

the sale of Tokens by providing users with descriptions of

each Token and its purported value proposition,” AC ¶ 911;

“participated in direct promotions, including ‘airdrops’ of free

Tokens designed to increase trading volume,” id.; “wr[ote]

news updates on price movements of the Tokens,” id.; and

“link[ed] to stories about the Tokens published across the

internet,” id. These activities of an exchange are of a piece

with the marketing efforts, “materials,” and “services” that

courts, applying Pinter’s second prong, have held insufficient

to establish active solicitation by a defendant. SeeYoungers

v. Virtus Investment Partners, Inc., 195 F. Supp. 3d 499,

522 (S.D.N.Y. 2016); see alsoIn re Thornburg Mortg., Inc.

Sec. Litig., 695 F. Supp. 2d 1165, 1220 (D.N.M. 2010), on

reconsideration in part, 824 F. Supp. 2d 1214 (D.N.M. 2011),

aff'd sub nom.Slater v. A.G. Edwards & Sons, Inc., 719 F.3d

1190 (10th Cir. 2013); Rosenzweig v. Azurix Corp., 332 F.3d

854, 871 (5th Cir. 2003); In re Tezos Secs. Litig., No. 17 Civ.

6779 (RS), 2018 WL 4293341, at *3 (N.D. Cal. Aug. 7, 2018);

Me. State Ret. Sys. v. Countrywide Fin. Corp., No. 10 Civ.

0302 (MRP), 2011 WL 4389689, at *10 (C.D. Cal. May 5,

2011).

And even had the AC pled direct solicitation by Coinbase, it

does not plead that plaintiffs purchased and sold the Tokens as

a result of such solicitation, as also required. Steed Fin. LDC

v. Nomura Sec. Int'l, Inc., No. 00 Civ. 8058 (NRB), 2001 WL

1111508, at *7 (S.D.N.Y. Sept. 20, 2001) (dismissing claim

where plaintiff “failed to allege that plaintiff in fact purchased

the [securities] as a result of [defendant's solicitation”).

*10 Because the AC's allegations fall short of the standard

set by Pinter, the Court dismisses Count One for failure to

state a claim.

2. Control-Person Liability Under Section 15

It follows from this dismissal that dismissal of the AC's

“control person” claims under Section 15 of the Securities

Act against Coinbase Global and Brian Armstrong is also

required. See15 U.S.C. § 77o. Such claims require a plaintiff

to allege “(a) a primary violation by a controlled person, and

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

(b) control by the defendant of the primary violator.” In re

Glob. Crossing, Ltd. Sec. Litig., No. 02 Civ. 910 (GEL), 2005

WL 2990646, at *7 (S.D.N.Y. Nov. 7, 2005). The primary

violation that is the basis for the Section 15 claims is the

Section 12(a) claim against Coinbase in Count One, which

the Court has dismissed. The Court accordingly dismisses the

derivative Count Two for failure to state a claim.

B. Claims Under the Exchange Act

The AC brings several sets of related claims under the

Exchange Act, First, it brings claims to rescind illegal

contracts to pay transaction fees to an unregistered exchange

against Coinbase Global, Inc. and Coinbase, Inc., under

Sections 5, 15(a)(1) and 29(b) of the Act, see AC ¶¶ 956–65

(Count Three); id. ¶¶ 966–78 (Count Four); see also15 U.S.C.

§§ 78e, 78o(a)(1), 78cc(b). Second, it brings claims to rescind

illegal contracts to purchase securities from an unregistered

exchange against Coinbase Global, Inc. and Coinbase, Inc.,

under Sections 5, 15(a)(1) and 29(b) of the Exchange Act, see

AC ¶¶ 979–88 (Count Five); id. ¶¶ 989–1001 (Count Six);

see also15 U.S.C. §§ 78e, 78o(a)(1), 78cc(b). Third, it brings

a claim under Section 20 for control-person liability against

Coinbase Global, Inc. and Armstrong; this claim is based

upon the violations alleged in Counts Three through Six, see

AC ¶¶ 1002–15 (Count Seven); see also15 U.S.C. § 78t(a).

The Court addresses first the claims of direct violations of

the Act (Counts Three through Six) and then addresses the

control-person claim (Count Seven).

1. Allegations Relating to the Illegal Contracts

The AC's substantive claims under the Exchange Act seek

rescission of the transactions involving the Tokens under

Section 29(b). Section 29(b) provides in part:

Every contract made in violation of

any provision of this chapter or of

any rule or regulation thereunder, and

every contract ... the performance of

which involves the violation of, or

the continuance of any relationship

or practice in violation of, any

provision of this chapter or any

rule, or regulation thereunder, shall

be void ... as regards the rights of

any person who, in violation of any

such provision, rule, or regulation,

shall have made or engaged in the

performance of any such contract.

15 U.S.C. § 78cc(b), To establish a violation of Section

29(b), a plaintiff must show that “(1) the contract involved

a prohibited transaction, (2) he is in contractual privity with

the defendant[s], and (3) he is in the class of persons the

[Exchange] Act was designed to protect.” EMA Fin., LLC v.

Vystar Corp., Inc., No. 19 Civ. 1545 (ALC) (GWG), 2021 WL

1177801, at *2 (S.D.N.Y. Mar. 29, 2021).

*11 The AC keys its allegations on the first element—

a contract involving a prohibited transaction—to the theory

that the Tokens were “prohibited,” in violation of two other

sections of the Exchange Act. As plaintiffs articulate this

theory in their memorandum of law:

The purchases and sales at issue in this

action constitute individual contracts

that are voidable because they are

entirely premised on the illegal

purchase or sale of an unregistered

security by an unregistered broker/

dealer on an unregistered exchange,

in violation of Sections 5 and 15

of the Exchange Act. Because the

contracts at issue are facially unlawful

(since each is entirely predicated

on violations of federal and state

law), they are voidable at [p]laintiffs’

election under Section 29(b).

Pl. Opp. at 1–2.

The parties dispute whether Section 29(b) provides a private

cause of action to sue for a violation of Sections 5 and 15(a)

(or any provision) of the Exchange Act. Defendants argue not.

Compare Defs. Mem. at 13–17, with Pl. Opp. at 17–23.

Regardless, these claims fail, because the AC's allegations as

to the first element—that “the contract involved a prohibited

transaction,” EMA Fin., LLC, 2021 WL 1177801, at *2—

are deficient. Under Section 29(b), “only unlawful contracts

may be rescinded, not unlawful transactions made pursuant

to lawful contracts.” Zerman v. Jacobs, 510 F. Supp. 132,

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

135 (S.D.N.Y.), aff'd, 672 F.2d 901 (2d Cir. 1981). “This

test manifests the common-law principle that a contract to

perform an illegal act is void, Ema Fin., LLC v. Vystar Corp.,

336 F.R.D. 75, 81 (S.D.N.Y. 2020), whereas rescission is

not available when “the violation complained of is collateral

or tangential to the contract between the parties,” Slomiak

v. Bear Stearns & Co., 597 F. Supp. 676, 682 (S.D.N.Y.

1984). A contract can be voided only where “there could

be no performance under the contract without violating the

[Exchange] Act,” id. (citing Eastside Church of Christ v. Nat'l

Plan, Inc., 391 F.2d 357 (5th Cir. 1968)).

The parties disagree as to the “contract” implicated by

plaintiffs’ claims. Defendants contend that the “contract” that

must have “ ‘on its face,’ require[d] the performance of an

illegal act,” Tanzanian Royalty Expl. Corp. v. Crede CG III,

Ltd., No. 18 Civ. 4201 (LGS), 2019 WL 1368570, at *13

(S.D.N.Y. Mar. 26, 2019), could only be the user agreement.

Plaintiffs, however, take a transaction-specific view. They

argue that “[e]ach of [p]laintiffs’ transactions on Coinbase is

a separate contract between the user and Coinbase to effect a

trade at a given price. Those purchase and sale contracts are

distinct from the User Agreement [d]efendants argue applies

to [p]laintiffs.” Pl. Opp. at 20.

Plaintiffs’ notion that each transaction involving any one of

the Tokens is the “contract” implicated by their Section 29(b)

claims lacks factual support—the AC does not, for example,

identify any transaction-specific contract. And plaintiffs’

notion that, without more, each individual purchase or sale

qualifies as a contract within the meaning of Section 29(a) is

without support in the case law. This Court, in fact, confronted

substantially the same issue in the context of a similar factual

pattern, in which securities investors made purchases or sales

against the backdrop of a foundational agreement between

them and their investment firm that predated (and governed)

the individual transactions. SeeIn re Bernard L. Madoff Inv.

Sec., LLC, 605 B.R. 570, 589, 591 n.11 (S.D.N.Y. 2019), aff'd,

830 F. App'x 669 (2d Cir. 2020) (citing Zerman, 510 F. Supp.

at 135) (rejecting recission of transactions where there was

“no suggestion that the basic customer agreement plaintiff

signed is not lawful”); Palmer v. Thomson & McKinnon

Auchincloss, Inc., 474 F. Supp. 286, 291 (D. Conn. 1979)

(rejecting that “Section 29(b) should not only apply to the

basic contract between the parties but also to each transaction

that occurs thereunder”).

*12 The Court follows suit here. As pled, the only contract

capable of rescission here under Section 29(b) is the User

Agreement. Plaintiffs’ initial Complaint is again telling on

this point, on its own terms and insofar as it incorporates

by reference the User Agreement, as reviewed above. The

Complaint expressly alleges that “Coinbase entered into

contracts via the Coinbase User Agreement, with Plaintiffs

and the members of the Class and Subclasses, pursuant to

which Plaintiffs purchased Digital Asset Securities through

Coinbase and paid Coinbase fees for the use of its securities

exchanges.” Compl. ¶ 273 (emphasis added). This allegation

destroys the AC's Exchange Act claims, insofar as it tracks,

virtually verbatim, the statutory standard. It is again no escape

for plaintiffs to have filed an Amended Complaint that excises

all references to the User Agreement, for the reasons above,

By stripping away all references to the User Agreement, the

AC is able to add Exchange Act claims permitting rescission.

But once plaintiffs’ earlier allegations in the Complaint as

to the same transactions regarding the Tokens are treated as

cognizable, the AC's bid to pursue claims for rescission based

on a course of dealings not involving the User Agreement

becomes unsustainable.

Critical to the analysis under Section 29(b), performance of

the User Agreement did not necessitate illegal acts. Indeed,

as defendants note, plaintiffs admit continuing to use the

Coinbase platforms since filing the original lawsuit, and “that

the Coinbase ‘platform has other uses beyond the trading of

securities, including the trading of crypto-commodities (such

as Bitcoin or Ethereum), which are not the subject of this

suit.’ ” Defs. Mem. at 18 (quoting Dkt. 31 at 6 n.3). Indeed,

as defendants note, because users are free to transact in other

assets—including Bitcoin or Ethereum, or not at all—the User

Agreement cannot be said to require any party to transact in

the Tokens that the AC depicts as unregistered securities. Id.;

see AC ¶ 49. Thus, viewed facially, “the customer agreement

at issue here is a lawful one.” In re Bernard L. Madoff Inv.

Sec., LLC, 605 B.R. at 591.

The Court accordingly dismisses the AC's Counts Three

through Six under the Exchange Act. These claims do not

identify a contract between plaintiffs and Coinbase that

would support rescission. And the agreement that plaintiffs’

predecessor pleading identified as covering such transactions,

the User Agreement, definitely would not.

2. Control-Person Liability Under Section 20

As with its Securities Act claims, the AC brings “control

person” claims against Coinbase Global and Armstrong, this

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

time under Section 20 of the Exchange Act. To state a claim

under Section 20(a), “a plaintiff must show (1) a primary

violation by the controlled person, (2) control of the primary

violator by the defendant, and (3) that the defendant was,

in some meaningful sense, a culpable participant in the

controlled person's fraud.” Carpenters Pension Tr. Fund of

St. Louis v. Barclays PLC, 750 F.3d 227, 236 (2d Cir. 2014)

(internal quotation marks omitted) (quoting ATSI Commc'ns,

Inc., 493 F.3d at 98); seeKalnit v. Eichler, 85 F. Supp. 2d

232, 246 (S.D.N.Y. 1999); see alsoIn re Lihua Int'l, Inc. Sec.

Litig., No. 14 Civ. 5037 (RA), 2016 WL 1312104, at *18

(S.D.N.Y. Mar. 31, 2016). The control-person claims here

are premised on the AC's substantive Exchange Act claims,

which the Court has dismissed. It follows that the control-

person claims must also be dismissed for want of a well-pled

primary violation.

C. State Claims

The Court must next determine whether to exercise

supplemental jurisdiction over the AC's state-law claims,

brought under California, Florida, and New Jersey laws, see

AC ¶¶ 1016–49 (California), 1050–71 (Florida), 1072–1106

(New Jersey).

Federal district courts have supplemental jurisdiction over

state-law claims “that are so related to claims in the action

within such original jurisdiction that they form part of the

same case or controversy under Article III of the United

States Constitution.” 28 U.S.C. § 1367(a). However, such

jurisdiction is discretionary, seeCity of Chicago v. Int'l Coll.

of Surgeons, 522 U.S. 156, 173, 118 S.Ct. 523, 139 L.Ed.2d

525 (1997), and a court “may decline to exercise supplemental

jurisdiction” if it “has dismissed all claims over which it has

original jurisdiction,” 28 U.S.C. § 1367(c)(3).

*13 A district court should, in deciding whether to exercise

its supplemental jurisdiction, balance the traditional “values

of judicial economy, convenience, fairness, and comity.”

Carnegie–Mellon Univ. v. Cohill, 484 U.S. 343, 350, 108

S.Ct. 614, 98 L.Ed.2d 720 (1988); see alsoPurgess v.

Sharrock, 33 F.3d 134, 138 (2d Cir. 1994) (“[T]he discretion

implicit in the word ‘may’ in subdivision (c) of § 1367

permits the district court to weigh and balance several factors,

including considerations of judicial economy, convenience,

and fairness to litigants.”). However, both the Second Circuit

and the Supreme Court have held that, as a general rule,

“when the federal claims are dismissed the ‘state claims

should be dismissed as well.’ ” In re Merrill Lynch Ltd.

P'ships Litig., 154 F.3d 56, 61 (2d Cir. 1998) (quoting United

Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726, 86

S.Ct. 1130, 16 L.Ed.2d 218 (1966)); see alsoUnited Mine

Workers of Am., 383 U.S. at 726, 86 S.Ct. 1130 (“Certainly,

if the federal claims are dismissed before trial, ... the state

claims should be dismissed as well.”); McGugan v. Aldana-

Bernier, No. 11 Civ. 342 (TLM), 2012 WL 1514777, at

*8 (E.D.N.Y. Apr. 30, 2012) (“[W]hen all federal claims

are eliminated in the early stages of litigation, the balance

of factors generally favors declining to exercise pendent

jurisdiction over remaining state law claims and dismissing

them without prejudice.”), aff'd, 752 F.3d 224 (2d Cir. 2014).

Here, no circumstances counsel in favor of the Court's

exercising supplemental jurisdiction over plaintiffs’ state-law

claims, The Court has not invested the resources necessary to

resolve these non-federal claims, and factors of convenience,

fairness, and comity do not require the Court to exercise

supplemental jurisdiction. The Court accordingly declines to

exercise supplemental jurisdiction over these claims. These

claims are dismissed without prejudice.

D. Dismissals With and Without Prejudice

For the foregoing reasons, the Court dismisses the AC.

As to plaintiffs’ federal-law claims, the Court's assessment

is that granting leave to amend would be futile. Plaintiffs

have already had an opportunity to amend their complaint,

see Dkts. 1, 43, and as reviewed above, they did so by adding

numerous allegations that directly contradicted their initial

Complaint. And plaintiffs have made only a perfunctory

request for leave to amend anew in the event of the AC's

dismissal. In their opposition to the motion to dismiss, they

ask that “permission to replead be granted” should the Court

dismiss the claims. Pl. Opp. at 30. But plaintiffs have not

identified any concrete amendments or additions, let alone

ones that might cure the deficiencies afflicting their Securities

Act and Exchange Act claims. This supports denial of leave to

amend. SeeGregory v. ProNAi Therapeutics Inc., 757 F. App'x

35, 39 (2d Cir. 2018) (affirming denial of leave to amend

where “plaintiffs sought leave to amend in a footnote at the

end of their opposition to defendants’ motion to dismiss” and

“included no proposed amendments”); F5 Capital v. Pappas,

856 F.3d 61, 89 (2nd Cir. 2017) (affirming denial of leave to

amend on futility grounds where plaintiff provided “no clue

as to how the complaint's defects would be cured through an

amendment” (internal quotation marks omitted)). And given

the analysis above, it is difficult to see how any revised such

claims could overcome plaintiffs’ factual averments in the

Complaint and the terms of the User Agreement. “In the

Underwood v. Coinbase Global, Inc., --- F.Supp.3d ---- (2023)

absence of any identification of how a further amendment

would improve upon the Complaint, leave to amend must be

denied as futile.” In re WorldCom, Inc. Sec. Litig., 303 F.

Supp. 2d 385, 391 (S.D.N.Y. 2004); see also, e.g., Panther

Partners Inc. v. Ikanos Commc'ns, Inc., 347 F. App'x 617, 622

(2d Cir. 2009) (summary order) (“Granting leave to amend is

futile if it appears that plaintiff cannot address the deficiencies

identified by the court and allege facts sufficient to support

the claim.”); Jordan v. Chase Manhattan Bank, 91 F. Supp.

3d 491, 510 (S.D.N.Y. 2015).

*14 The Court therefore dismisses plaintiffs’ federal claims

with prejudice. The dismissal is, however, without prejudice

as to plaintiffs’ state-law claims, which have been dismissed

based on a decision not to exercise supplemental jurisdiction.

CONCLUSION

For the reasons above, the Court dismisses all claims in the

AC. The federal claims are dismissed with prejudice, The

state-law claims are dismissed without prejudice.

SO ORDERED.

All Citations

--- F.Supp.3d ----, 2023 WL 1431965