Tradehill v. Dwolla Et Al Complaint (Filed Copy)

5/14/2018 Tradehill v. Dwolla Et Al Complaint (Filed Copy)

1/19

dttOltU~-Qr Pla..infi{f,. 5 Trade~ l 1 1 '1 ( ; . - -67g' 9 ENTRAL D]StRICT OF'CALIFO'RNIA- S AN FRANCisoo DI'VISIONr o ,~',l i f t , ' . , ' I 1 - - . I

TRADEH[LL.INC.~ a Delaware C(Jrpo:r fl .t ion~~E~. : - . '- -P la],lII.d .ff~) ~ COMP~AI~T F O R , DAMAG~ES

. 1 ' " RESULTING .FROl\ l f :.'. 1 .)...1 . g " ' l , , ! ! . ~.~.L 4 . , . ;( A . ' c. _ . T ) ' , . , I .O . '. _ - N . , ' . ', , . o . ! F , : ' . l .8 . U..'.... c W(}LL,A,mt ..a-Delaware C , O l : p o r & [ r n . o n ; ','j ll'UBEN M ILNE~ an individual; G HARISE . 2\~ FAL"S.E ADVERTI . .I N . .H:,14 ~ , . . '7FLYNN i an ind ivid ual; fU ldDOES 1=5. ~ : ~~ ~ l I N C :M '~ ~ i ~ N T R A c rc r ;

1.5 Defend ants.. j ' M ISREI 'R.ES-ENTATION; ,5) NE~L].qENr _. .l6 MlISREPRESE.NTATIil>N,I,7,.' 6J CONCEALMENT;) 7) R : 1 L ~ L r r r U 1 J q NAFI'ER) RESCISSION;18 ),' ~) .'.(lQN.~.,..~ERSlQ.N, ANn) ~ l DEF A M A T] ON.1 9 :

Hv .

2 ;02 1

'2 22324252 6:2 728

'1 .COml)f :am,l jdrf>i7l1M~'(1S'


2/19

I for its complaint' &~alDsl,defe:nd2mts.D~woUa~nc" (~'Dwa[la~~)~en Milne ( < < ] Y I H n e : ' ) ,2 : I Ch~ui;eFlynn, ({~mrm~"J,andoes 1 . thxongb 5~conec tively . the "Defendants"), plaintiff3 I I Tl'~d.Hm,~o';("T.a~H:I,r')aUege,o~ ~";~nol ~O~I.dge a.~ its"I(~il i t& own actsand4 on Information-and b~het as to the Defendants and. their acts. (1$ follows:56 ,I7 -89

10111 21 31 4151617~8m 92 0212~232 42 . 5262728

JlJRlSDIC'T10N AND vENUE1. th is Court possesses jurisdictionbecause H invo lv es, a fe d era l question, :U ~U.S.C.

.m96~(e). This Court further possesses subject-matter Jmisdidion for this action unde28 U.S,C. l33:2(a)(1): fhedefendants areeach citizensof different-states fromthe_p~atntiffand the amount in c entroversy ex ceed s $75~OOO.

:2. 'This dourt possesses personal jurisdkaion over 'Tr:adeHiJl as its principal place ofbusiness wasin San F'l:: i]Ji;cisco~California . .

J. 'rhi's Courtpossessesperscnal jurlsdietion over Dwolla under Caiifornia's "'loH8'"1!lrn{'swtute,.'Califor.nia Code of CruvilProcedure 4IO.10. Dwollamarketed itself a nd Itsservices ]m l and.'wfIJfu11yconducted. direct business withmultiple indivich . .als, i 1 1 J i c l l H . 1 i l 1 J J ~1):~de.ai1J~a Calif QrH] a . mul~ip~.e"t .hnesand lRihecauses of action claimed below byTradel-llll arose out c i f Dwolla'sactivities in the Northern. District, t he reby prov id ing ,U . ',. " '. .' ,- " ,,~ S " , ) ) , " . h e u 1 : r , , " " , '~ 3 ',9 ' F " 3 d ' l'0 ' - ]' '1 , '({~lliC " ' , ' , - 2 ' ' o o t l ) ;1 11 UU m UJllocnta c ts ", . ,e o .Dosc .e tto v. n ar~smg,~.),." ''''.0 , '. l '. ;J ..... l.r. '., 0,/.

4.. Defendauts M Une'.amd Flynn participated inthe organization, operatton and leadershipof'Dwolla and d irec ted th e. enterprise's operations tn th e Northern D istric t o fCalifornia,

5. Verare js . proper illthe Northem District of C2Iliornia, under 28:U.S.C. g 1391 (a)(l)&(h) (2 ) .. Tmd eHi ll ll l1 I ti a ted therelationsrup W]~bDwolla w h H e its pril1cipal p la ce :o fbusiness was 'situated, in th e No.rlhe:m District: The: f.rdiud ule.fiLmisilepresentitions ! d l a tsubstantially form ~h0basis fo r the causes-of aoticn ][ 1 this Complajnt ' ' \N : l ir e made. tnresponse W the activities of'TradeHm operations based in the Northern District ofCalifornia, and were directed towards the Northern Oisitict of California,

I I1 1

,'2,e~'jU~ilJtjor:.DmlU!ftfJ$


3/19

2 6~ T(ade,Hill i s " f t l ~ ~U'releilabt t!me:s,'a {:o.rpO;l'atf:6rdllcQrporated. under the law s of the.3 State of Delaware or was a '.sole~J)ropfiel6I;"sJiip owned by Jered Kenna with. its4 princjp'le place -of business in, S an F ra nelsc o, C alifornia , T ra deH ill and it~ssociated,5 W ~b&' it~sand bus inesses were orie:of the,world's leading,resource'\! '~Ol'Bircoin, a virtual'6 curreney.7 7, Dwolla is:~.and.at aU ltl6'vuui time"s~ c i ' b l A s l D : e s s 'with i t s principalplace 0'[ business in'8 Des' M oines , Iowa. On or about January 2.5;'2012" Dwolla hicorp9tartvd il l D~hitv,[U'e:;9 .a t an . other releyam thnes, H was tncorporated In Iowa. At. all relevant times, Dwolla

lO ' was .a m oney service business. engaged In money t ra n s ' m , ] i s ! > i o n thai provided an on~.rnl']'II p'ffymeil~ syste-mudHzjllg tll.e Auromated Cl'e.al'ing Honse f'Ac}r~)aY;I1lCID, tprocessing12 sy stem fo r Irs c ustom ers, Dwo lla w a s .a n Iowa. .licensed rnione.ylIansmitttif at.al1" I 3 relevanttim es until Octbber i, 2{} [1 when. its license wascanceled, Dw.olla~inclodi,l,g14 ] t - s 1 e a d e . :r & h tp , oWl1e;rShtp, nUluage[l le 'u t, ,eJ ,nployees, as~o',ciales a n d o th ( ,; '; I " I D . ! .' ? J n b e J :s . o r1.5 representatives, constlrures an "ente rp ris e" , 1 1 1 $ ' defined 1 1 1 t8 U .S .C . ]9 6 1(4 )., a16 co rpor aticn '\yh iG h .is engaged in, andthe-acrivltiescf which effect, intersrate17 commerce,18 8 . Dwolla ' opereres in the NQrthern Dlstdct of CaUfo:i 'n~a~,and elsewhere in the Unitedt9 Stutes andabroad , eonstituting a n engoing.corporate o i ' g a J l w ' z a \ t i 0 1 , 1 w h o s e membru'~2 0 fu n ctio n a s a co ntin uin g nnit (o]",tl.eom m c u pUljpose.-of achieviJl:g'~heGbJ(; ' icltve,g ' o f t b 0 6 -21 enterpriae ..22 :fi.Milnf\ a resident of Newton, I o w a . is ii.:ndlwasat all relevant t im e & th e - " c h . i i ~ J t '1 8 ' e c u t iv , :23 officer of Dwolla ...24... 10.Flynn .a residens ~orDesMoines . l m . . Y : a , ] s and was _ . % 1all relevant, times the ehic;:.f25 ope-ral iing: oif il lcer of Dwoila.2 6 1]. The i d e : l l H . t i . e s of the nefe;llil.~nts m U l l e d "Does '1 t l I 1 1 " C f l l g h .5 '~are nOT e u rre a rly k no w n by27 Trndeflill. If and 'when T[adeHi]] learns enough iiiforn~a6o]] on their identities, Ihey28 shall he ,added to this action.

'3Campln i~ l t, fi ;. , r Df ' !. liUWeS


4/19

I

2'345 .678 '9 .1011] 21'J1415Hi171 8' 1 9'1 0'2122~23' 1 7 '~,-'~2S2 62728

12:T l ' l ldeH.m entered iri(Q a m ,0 f u t ia o t - c u s : 1 Q l l l e r .reJfl!ti"orfsllip'wMflj 1)wdna ( l e n a ! " about-Juue8. 2.011. As a.merehant providing Bitcoitr exchange and other services, ira-deEmw ould d irectits custom ers toDwol la ferp tU ic b ase s o f T ra d eH iU serv ic es OJ fo tin vo lv ement in T r~ d eH i.] Ts.J B i t o o : i n exehange, ' I l ; g W . e u m w a s a r i r a c e e d to Dwona . - asO p P Q ~ H i l , (0 c ompetitors .suc h as PayPa l~ Iac. - beeause of Dwolla's'very [owtransaction ~~e.i),0.25 pet tra nsac tion, a nd b ec ause Dwol1a Ilea v11:yadveaised that itd.~d . o ~ : o t "chargebaek", ~tlla:tlcs transacnons were ~ ' , a B g o o d as c a s h ' > "

1 '3 ,A ~1;har:g0b:~ck~ 'hi a pra ctic e-in (L ie fina nc ia l servic es. a ndmo ne y tra nsm ittlngil~dtas.tries, It is used . by fh 1ancia] i1lstllUU,ons~tili ziug Ike ACH system ~o protectcustomers from. fraudulent m c ~ c : J . l : a n ~ B (in the ACH system , a ' ~ c : b a J g e b : a . . c . k : ' ~ I s formal lyreferred to as a "reversal"), Bss.erl!dany.~ if a c ustome r c ompla ins to his financialil1$~itllticm t h a t he 'didner receive a product Of service as promised from me~.lJerGhantEUHl Jiles ap:p,ropd.ate p a . p e a : w Q r k (such a U . affidavi"t).,the transfer may be reversed ,~]id.the customer 's funds wUI 'b e re tu rn ed .. Dwolla .c lea rly k new about chargebacks andspeeifically tai lored irs bnsiness strategyarcond them. B y ' promising and adverL is i,ugth at th ere will be , ! ] ! . Q c h m ' g e b c i c k , s to its custom ers, Dwolla w as exproess]y mking a . 1 1[e,spoElsihiHt},' '~or any chargeback request from th e finauclal Insd[ution a n d rr f u a l ~ i tsc ustom ers w ould inc urno loss from said chargeback requests

l~ , Tr~cI~HiU~befoteenter:ing into a reIad(}ltshJr w ill) Dwolla, c onfirm ed multiple timesL~~uDw;ona d i d . 1 1 1 fac(j havea " no chargebaek" policy w ith D wolla 's eustom er servicel'iepre&e.J1~adves.,.This policy w (luM c ontinua lly b e conflrmed b y T r a . d > e H i l l and..etherparties up l!:llli] or about July 27.) 2011. :rrnldem 11reH"ed upon Dwolla\)'ad v e ; [ d $ e l 1 J ; 1 J ~ , n : t-~md[ 'epte.." 1 e.r ita tion sbefo re enter ing in ro a eonnac tu al relationship with Dwolla for.money - trans ln irbng s erv ic es . t:mdeHm Is' reliance was reasonable,

]:L Between June 1~,201] and July . ' 2 . 7 . "2011 (the ""tili1,e Period") , T r a d e f [ U l conducted-abOl~tI . , O O O transaction s w orm over $ 2 , Q : O O . ; O O Q in rran sa c tions u sin g D w o l l a as m e

4CIJ'Yl11ffl ' i lJelof DumaJ:es


5/19

, ]ritlddle~lil,an, DwbJ1ar:ece"Lv&] ttbdul~$2;500 in ~ a : l W S a : c i i o D fees.from TiadbHm during2 . the Time Period,

F'

4 " Ttad cUilL One em ail would , state tha t the, peymen t was " ~p end [[) g" a nd \v 'ould soon be. 5 deJ~'t~i~lo TradeHm 's accounc A f'te F th e money w a s ~arwsfened to TraleHUIis,() aac:ouJ1ft~,asecond email would s~a: terh atth e customer's p aymen t ~~assuccessfully7 received " and . chat TradeHiU's : a c c : c , J U 1 1 ~ was '~"credi ted""witb fuep:acyment A1I:Uds poi" rH8 a;cpording" to Dwolla's oW rlJlclveltlsingJllubed als (transac ticns " a s gciodJlS: cash") and9 ' convenatkx,ns:-Tmde.HjU h a d with Dwolla representa tives b efore and (tilling th e TimeI0 Periodcthe ~X:redithl!tWOllM NOT be reversedby Dwolhl.. Dwoila, however, knew orl~ should have-known th a t tb eserepre ee ata rlons were f a l s e ) ' , Bused on th ese12 misrepresentarlons, TrmdeHll1 b elie ved til.a t it could thenprovide services t o - th e:13 customer ~'iliUjootany risk of tll~ transaction being reversed and. ]oi~ing l~lCmoney ..J4 1'radeJJ1Uthen 1'.n'Qvikl~dhe,servicesto ' m e customer,15 17.UnbekllownstwTntdeHill a nd Dwolla , '3; number (if customers were usiug Dwolla to1 6 r et t1 iv .~ sen rj ces f inm Tl1WeHil1 for free,17 18 .These cus tom.en w{'f! lld pure lra se T rud eH iH servic es a nd b e d irec ted to Dwolla o o ~'illS .complete .the-money transfer, Tl'ad eH iJ1, once h received c onftrm a tton th at the.funds19 W ~{[ecred ited UJH:s a ccount '[[0 111Dwolla, TIM e-Hill would th enprovld e " its.se rv ices,

",2 G O n~~ :t"lj;a lrecords ofTrad eHHl and lQJ' pubUc]y av.ailable Rit tCQi l1 records ca u s now ili~lt21 Tr!d till ill .2 1 C ! U a l I y provided serv ke'..~.o r sold B itcoins lliall of its' cus,wm,e"rs,) These22 customers th en filed . a f f i d a V i c f i w'i thme' fin a nd a lins ti tu tio n 'and tbe l1rnarrc ia~insJurut i f .23 dern~ltded aY:ch~~g~b~kofthese funds ftorn D'~woUa.Despite repeased requestsmade,24b Jf 'f.l'adeHi11forthese affidavits ann repeaterl promises lD y .Dw~oilato p rov] d e lhe~,2 5 Dwtl~ )a t i~s[ioL prmdded a :sidg le .a li idaVi t supposedly associated with these'Z 6 el la4'~backs;, a s sn ch , T ra d eH il1c ah on ly a ]leg e.th ese [i,ftld avits' exis rence - , . . nd mat.2 7 uh.etransfersreversed mentioned in this Complaiut were actually based un chargeb ack.28 req nBSis +based on infunnatinn and belief. Ifthese .af[idavit:st do not in fact exist,

5Cowpia. inf . , for. D l i ! m a g . e s


6/19

1 Dwo lld simp ly rev~rs;e (lj tlie;c st,f i ;aqs adt iQ I ff i ; fo r riore:a$On ant i Tta,QeHnt shan. amend"2ihi.s. Complairul-. a c c . i l l " d t n . g l Y .3 I9. Al:Jfui'Spo~nt,.under its Dwn lidverds.edJand eOj}frrID1~d)" no d i argebaek '" po]ru.cy,.4 Dwalla j)lli lbUid h a v ~ e been responsible for absorbing x b e ; I D , Q B S 'of these cbargebacks,,. 5 DwoJ1a was .QQtil:ract~iruly b arred from forcing its customers ~'Qtaketbe loss, Hqwev~r,- 6 Dwo]1a (]U1n ot fo1l6w itsown poUd es.W l thouc any-kind of notice, Dwo11 f llreversed7 " ,Cireuited " [rai1lsuctions 16'~pend:il1.g" I ftrUDsa.cdons in TradefJjjllis account fo r multiple8'~ram;act10ns,d.'lluring 'rlfeTLme Period . Trad eH1U d id not receive-any ernails, phone9 calls, OJ any od le .f 'Jorm. of communicaticn concerning these: reversals.

10- 20.0:m"Or t lb .olJt luly r o , 2(H1, employees bfTrardeHHI beganto 8US.p~Ctsomethingwas11 M'O.llg 'W ith. their Slj:f!~pos:edly'!c[edl:ted"~iIInsadtion8. E v e n though Trad (lUm was rujtl2 receiving notices from Dwolla .. th e nnmb er of"c:~edhed'" transactions was not13 ,c,Dr:upa.Bblewith th e numb er of sales :TrmfcfHUconducted; the dalfaramcunt oJ14 ~~c1:' 'd ited ,'~\anSflction:s was d i ve rg in g sbarp]y lowe r eom .p rtre d to T ra d eH in 's i n J ' e 1 1 ] , J 1 , 115 sales :l~igmr.e8. To confirm the suspicions , T l" a de lli ll dented ,a !simple program 1 : 016 compere transactional his tor ies : 1 1 " { J 1 i 1o ne d a :y , tq t l l e , n e : ; < ' c - O h e s e : h i s , t h r : i e s were p ro vid e d17 by Dwcllain a.spli':adsh~et'Ttad6:Hill could download at ilil;inme ). Using, '~bi18 program, 'Iradeflill was 'ad)k::.~.ocPI'ru.firmtltitt [[llI.ltiple "credited" rrausaetions were;19 reversed td'l~pending'~da.iJy wi~li.. . 1 1 1 . 0 :nbti',ce l?l'Ovided by Dwolla;20' 2L From J lU~ .y~A,2{HJ tbl 'OlIl lghJuly 25;, 2011 , Tl:~deHiU altelnpt:ed te r e - s o l v : , e this issue2] with DwaUa. Trad ! .RHmoo llta cte a Dw6 ]hi',s . cU.stom.er servi()~ multiple timesand sear22 multiple em~l~diJI"t ;cf l i~o Dwolla's corporate officef8"i.nt.ludmg Flynn, Dwolla23 o : f f e l : > o o . l m;g'e ly silence to I[.ac~eHin':!icencerns; ~he'esponses .j ~ d 1d pro v ] de between24 July 14 and. Jfum.y25we.re ncnsensicnl or v~gue". TraaeI-lill, nt.~]s J~tii.t1Jj.was not.just25 ' CQ] ] ;C ;101 l l ! . }d with th.e l(},Sses;itwas .incurring: Tradel-lill wan ted t o help DWQHa stop th;e .> " _ _ . . ( :U.S ..C . ~ 'H '( 10 ) & :Ul61(5)~c on sis te d o f th e fo llow in g-a cts :Racketeering ActS$ 'V i re F r~m d in Viohl'tioll of 18 U .S .,C . 1.343

.34 .The defendants named bet6w eom mined or. c aused the commit ra l of the follow ing actsof w ire fraud , Beg inning-on a date unknown to T ir~ d el i ll~b u t c'eltain1y by .Mayl.,20lldefendants Milne, Flynn. a nd D'oes 1 thIbugk5~. conspired and agreed with eachotherto knowingly aD d i l 1 t e I D . . t i o n a l 1 y cemmn the following o : f r - e n s ~ < : ; :H. Devised.a .scheme or ar ti fi ce, namely false-advertisements 0]] Dwo lla 's v ;~ bHe

claiming thatDwona. had fi "nocbarge.biack" policy, for the purpose o J iJbta:ini. rag .I .t lepropet~y . of Tl'adeB1ll 'anct.o[1hers by fia;uil. This scheme 0 : 1 ' artifice wastransmitted o ver w irec ommunic atio ns, 'u sin g writings, signs, signals, picturesand/or sounds.

WCiNfl.pMmt['Oi' DamtlJl :el!


11/19

1 h. Devised-a scheme or 'Rliific~ namely a pattern oJ intentional misrepresentations. to2 ' potential and current custom ers of Dwolla falsely Clwming that Dwolla had.a "no3 chmr.geba.ck:~'~olicy, fo r the purpose otobMioing, the, property of TradeRi]] and'4 others by fraud. This scheme or artifice was, ru:mll$miu'ed "Overwire communicatiens5 usi.ID,g~.wrhings.igns, signals! ..pictures and/or sounds,{ 5 c, Devised a $che:me,or'arl!ifitce~ nairn.ely th e ceneealment of app ly in g ch arg eb aeks to7 .hs customers wimOll!t,pTOV~dillig notice to il'Ym.ist.ome[softhose chargebaeks {and8 . while continuing toclaim ithad a " ' : 1 1 0 chargeback" policy), fo r the purpose.of9 ob ta ining property of Tradeflill and others by fraud, 'fllis sc hem e o r a rtific e' w as -

~0 transmi tted over wire c om muni c a rio n s u " S ' i n .gw r i t i n g s , signs, signals, pi' cturesW] and lm . sounds ...~.2 d. Devised a scheme or ~u :~ j. fice.~armely the b lo ck in g, TmdeHU] 's attem.p t to withdraw~.3 $70,.000 on J : l l J y 25~ 20'1.~]witbou.t justiflcarion, :tbr th e purpose of obtainingW 4 r : l 1 " O I ) e ; r t y oi"Tra,deHUI by .1li. 'au.d.tl l j~~8chegne o r r aruJice w a s transmitted o v e r wire

~6 35. "{'rndeHj]] relied on the frandnlentrepresenrations committed by defendamsMllne,~7 Flynu and.Does L tluuugh S.18 Racketeed:nB Acts:: nank Fraudfn Viohuion of i8V.s.C. 1.34419 315.The defendantsnamed below committed 81' caused the cemmittal of the followingacts,20 of bank fraud , BegJlirl.hl.g on ~l1Jy 25 ~W] L Zl11dcon[i.rnui.~l.g' until Oil. Of about AU.gU8'121 15.2011 defendants Milne" F lynn and Does 1 tlm:nigh 5 ,. c on sp ire d a nd . a gree d with22 each other~oknQwingly and intentionally commit tile following offense:23 a, D evised a sch em e-or ad.moe" nmneJy by e cmmunic ating informa tio n d e fe 'fid a ll~ s24 M ilne, F lynn and Does 1 CIJi) ."Dugh5 l:new o r should have- known w a s false, W25 obtain moneys under th e C,lIlSlkldY"Of cantrol ofYcridiau bymeans of:fals.e or2 6 fraud id.ellt repre senta tio ns con ce rn in g Tliaoe,HlIL',27 37 ..dvert Acts. In furtherance of the conspiracy, and. toaceomplish the objects of the28 conspiracy, dcfendanrs Milue, Flynn and noes 1 throu~h :) oommitted or caused to be

1 : 1 .Cm~tplid:n.iJrJl"Dnma,iiC~


12/19

~ ] committed various oven acts, on or nbout the ~ollowjng dares, including but not"2 Hmited to,..the following:3 a, By , latest March 30, 2:clt r . : falsely advertising that Dwana had a "no chargebaek'4 policy on Dwolla 's w eb site a nd a ox ho ri.:z in gfu au ne falsehood.to be commnn ic are d5 ~Dpotentia l a nd current Dwana customers.6 b; On or about June:&r1blll 3nCll0N].zing Dwana's customer service representat ives to7 ralSie~y state to Tl ' adeHUl that Dwells had (I, "DO chargebackt policy.: 8 c. Between June 15.2011 and August ~nien 1, frauaulennY~IeVersed the following9 rransecncns "credhed" during the Time Period with no notice provided to] 0 I TradelnU (by reference number): t~'1457~ 126546~ r36999~ 1372]J~ 139722,11 142339:~:143043 .1433o.3~ 1437.55~~44.547~ 144554~ I450S5.i 150259, 1,56387,12 1569'&4,. 156988 r 16en 81. ! 16 0 1.85. 2.67428, :I 67 5 7 7 ~ H58~n,4t 174003-! 1740"21!]3 1:83142) 183.433~.1.83455J '183Afr5~ 18349'Si 183 '9~9?~[84003~ 1843:33 ! 1 8 4 5 5 8 ,14 185473 j ]:90J20. 190]2.8! 19(j133~~90143~192,943. 1931iW 5. 193483, 193546,J5 19495 .1~, 1 .9 5027 . 1 95351 and 1 95 '358 ,16 d. Between on or about.July :25,2:011 and 'August 15,2011 intentionally] 7 miaepresenting or causing to 'be misrepresented th e busin ess a ctiv itie s o f T l" a d eH tn] : 8 to V ed cfhm,prec ve.nc lng th e tm nsfer of $iO,Ooo in funds belonging to 'Trad~Hln to19 aCCOUi1~Sunder Trade:fnU's control.20 Sl~1'iD CLAU\lJ!:ORJjElJEJF.' 2 " 1 O f . ~ 1 1 5 eAdvertising)2 2 < 3 , 8 . ,Tr8!cle:HHlreaJlagrs? a nd incorperates hy reference, the allegations of pa rag raphs 'I23 through 28 and 31. inclusive ..nswflitUy set forth herein,24 39.,Dwolla advertlsed the following claims Oil its website and in oonversauons with25 TradeHill representatives lhijl~W eI De fn]}se:m) that it had a "uc-ehargebaok'tpelicy; .and26 b) all transactions done 'lT I:ro u_ gh .w alla were "as.good as cash". At the t ime Dwolla27 publicized these false advertisements, it l.n~endedforeustcmers - including TmdeHjll28 -~Dely uJ)on them. and enter into contractual relationships with Dwolla,

],1CiM1tpJ,aim 1m ' D t lm - 8g es


13/19

, 1 40,Ti"adeHUleas,oijib1y 1 7 6 I ' i e d ' llpn~i". D w o : l h { s , . a dvertis ed polic ie s byc.ontl)1]Jlin,g t h e2 . existelJ1ce'ofthe '~~uo,ofu.mj;~baQk'"p o J i c y . ' T " : m : a d e H i U ' c I l C l 9 r e d into ' a [e~t1t ionship w~th:3 DW{} ] "m f \ on the '~n~1)ecniti6n] ra tpod ic ie s adve rti se d will b e' follow ed b y Dw ella ,4 41,Dwon~{sac tua l po li cie s diffe:red.EHlbstamiaU a nd m a te ria lly from t . m l C " n o e ha rg eb a ck "j 'po llc .y fa lstil~ r ad vertised , DW O]]1:h in fa ct. rev ersed mu ltip le ttansact~ollsTradeHUJ() w as led to.helieve'w ere " cred ited , " 'com plete;~ and " as good as eash" ,7 ' 41..1\8 a resul rof this false ad vertising and it s reasonable reliance Q D lr, TJade:HU1 w a sg s-uhs:tmltiaJ]y diIi .n:naged. T''''ld'eHln com pleted sales worth' $94.878'.72 but the funds Jar' 9 tbose sales were reversed hi Dw,olla" As a result of cash flow problems directlyHJ relatedle Dwolla's actions, T r : a d e I - - r i . U was also foreed to shut down operadoris on'11 ! e l n u , . z I J r y 13'. 2 0 1 2 ~ l ead ing to . sebstanua l damage [0 its re pu ta tio n a nd th e lo ss' o f tI~ e12 $1.0 00 ,0 00 p ro perty ! b itc om .c om , b iteo in .c o and bttcoln.co.nz,13 4'3:.111dOlng the acts alleged herein. Dwolla.acted w.ith malic e, fra ud 0)' oppresslcn,14 U lereby e ntitling Trade+lillto -an awardof ' P U f i l t l v e d am ag es inan MIIOlUlt e o be15 d eterm ined at teial, The m a lic e, fraud or oppression of OW Qlla was coaunlttedby one16 ormore of its offlcess, d irecrers, 'm anag ing ag ents or representati yes, u c t i J 1 : g whhin the17C{H.Jine Q t' his or I : t e . r employment,18 l~mRJ1CAIltSE03 AGTJDllS19 ' (B .Ilc~1.tibof nntr,ac .t)'2044. Trad eH ilireaH iges, and iucorporates by re fe re nc e, tb e , a i l e g , ( 1 l i o f l S of paragraphs ~21 threngh :Z8arnd 31., inclnsive, as i f f~Iiyset fOJth herein,22 45.o.n or about June'S, 20ll Trad elfilland Dwolla e.:ntereklinto a ccmraet :fbI:nl);()uey23lra.dfismisskm services. This contractual relatienship wasgov,etned 'b y th.e.'1'e:lnisof24 Service in effect at rile.time. That version 'o f the Term s of Service .dIdnotinclude. any25 provision for returns or cha~'gdmcks~returns or holdsandDwolla had further26 re ere se nte d j) riu l' to th e c()l1l1~acw.all'elaticlLlsbip. th ar.Dwolla wou ld n ot p as's27 chargebaeks to its customers..28

~3CompfaiJujo'f)mna:gcs-


14/19

" 1 46. By reversing 'credited" transactions that Dwolla had promised were "as good as cash",2 . Dwolla b rea ch ed the contract with ~u:}(:titsobligations to Tradelfill,3 47 . A s a re sult t) i'.tb :is b re ac h of contract, TradeHill'\vas sy lb sta nttuUy d ama ge d , Tmd e~H i~ ~4 cornpseted sales worth$94,,878;721bij[lt the'funds for those sales were rev-ersed by5 DwoUa,. in contravention o f the-contract with Trade-Hiill. As a result of cash flow,6 problems directly related to Dwolla's actions? Tradelfill was also forced to shut down7 operations on FeJhmMy l " 3 t 2012, lea,d i.n_gto ' substantial damage to its reputa tion a nd .8 . the loss of the $J..OO()~OnOptopel"ty, bitcoin.com, bitcoin.co and bitcoin.ce.nz,9 48. Dwolla cannot assert that this dispute must be resolved by arbitration, Dwolla has10 waived Us rightto resolve tliis contractual dispute by arbitration by ignoring' all11 e~ftreaties by TradeHiH to settle' this dispute out-of-court Tradelfill thereby asserts12 and protects its rights in this Court.1 : 3 .1iOURTH tCAUSE OF ACTION14 (Imentional. ,IVfjsre:pre.sentation)15 49. radefru reallages, and incorporates by reference, the allegations ofpara:graphs I16 through 28 and 3T. inclusive, as if fully set forth herein.17 50. 'Ihe.m aterial representations m ad e by Dwolla concerning its "no chargeback" and "no18 reversals" policies were false in the following respect; D \ w Q U a did not have ~ ~~T:lO19 ehargeback' policy and did. "linfoct" reverse customer transactions after receiving a20 chargebeck .sequest.f rom acred it card company,21 51. At the time Dwolla made these false representations, it knew thatthese representations.22 were false or made them recklessly without regard, to . the truth.23 .52.At [be t ime Dwolla made t hese fal se rep resen te tion s, it intended Tradehlill to rely upon24 those represen tanons.25 5.3.At the time Dwolla made these fa lse representations, Tradel-lill did not know these26 representations to be false, hut"believed them. to 'be true, Tradelfill reasonably relied27 on these false represenrarions in entering into the relationship with Dwolla, [f28

14.Co1n.pl ai l# . fo r . D tU lw f (Cs .


15/19

.' l 'FnrcleHiU h n d . known fhe'truth, it would not h ave i~[Itere4.inlQrne ,relallqm;hip with . - ~ . ~ c

2 Dwolla, paid the-transaction fees dPle. '01'otllerwise: ~~ tlSJ]) ed ii~:sblig ations.3 :;4. Dwolla and its .repl"e'.Sen.ta:ti\tes. t ;oo:t innOO com.ake these Jalserepre-sen:tadot1 sduI'[ug 'the'4 Time Period to Tn~deHill a nd th ird p~:rlies,.eveuwhile Dwolla w as reversing:5 : "credi ted" trmisactions w ith out ex pla na fion or notice,(5 : 5 5 .Tn ld eHUI was subsrantiall y dmnagecl. ~IS a . d i re ct re su lt ofrel ying' o n th ese f~]se7 representatl.QP:s. ircl.clnding.tbe$94.878.72 u[ljuslifi.ably taken by Dwolla. Asa result of$ c ash O o'w p ro blem s d irec tly rela ted Ito Dwoll i lJfts actions, Tm.c!eHm was a lso fo rc ed to

. .9 sh.ut down operatious-on February l3~.2Q12jleatlin:e; to S'l1bsta:l1tial damage 1 ) 0 ]ts[0 :mp': l ; l t~1l01l llrel the Joss'of the $l,OOO~odo proper ty , bitcoin ..om , hhcoin.co and11 biteoin.co.ne,12 56. l:n doingrh!c acts . .al leged he-rein...Dwol~a.acted with maltce fmu~.or oppressien,[ 3 t h . e i r : e b y eutidhlg,Tr8iideHiJ] to an award o fpuu itwve d ~ I . 1 J , F J , a g e ' Sn a n a m o u n r to be]4 d eterm ined at tria l. The m alice, fraud OJ opp ression of Dw olla w as c omm itted by one15 : 0 1 . ' more .o f 'Hs of ficers , dit'e(,';COI'S~ maoagiJ:ng agents O i l ' rl}p.r~sJel11n.tlve~cd ng within the16 course o,fIi 'IWs--r heremployment.m 7 FIFTH CAUSE OF AC'l'lON18 e N ' egli.:gentM :ii.srcl)teseJJlta:Uon)] 9 57 . Trad6Ni Il rea llages , and incorporatesby m f e l @ ! U C e " thea lle ga tions o f par ag raphsl2 () thlfoll:$llil 2.a~~7~ a D d 49 through 56~]n cl u s ive, a s if fllUy 'set forrh h e re in ..21 58. At the. thm~Dwana made the.Ialse J:epre.~cntruL~x';m$detailed i:n ~heCommon Aneg,~uitrns.22 and in th e'T hird C au se o fA c[l! ~n e on cern in g -its " n o c boo :g eb a ck " p olic y , i t t d id not23 ba;vc 'reas:~pable grounds for be~ievi~:gthe l 'ePJ~8e:l~ta' t ionso be-true,24 , SIX11I CAl!SlE OlFACTION25 (Co.nceillhne~t)26 59, Trade l fl ll re allages , and ]QC~J]:pl~l"ittes~Y'Tefere;n-Ge~itlhel legations of paragraphs 121 U nungh 28 - and :0 .Inclusive, as jf fu lly se t forth herein.2 8

15Cf!fflr'k!~1!~j'()Ff)'(tt~(J.gI;)


16/19

". '[234567:89

1 . 01 . 1l2l l i 314~5161718W 9202.12 223242526 II27 1 /28 II

60.ln making the representations concerning its "no-chargeback" policy set' forth. intheC0n1111(JU Allegations, Dwolla c on cea led imp orra nt and materia] tacrs: that i~d i d . havea c harg eb ac k policy a nd th at Dwolla w iU reverse.iransactionsif ~ttransaction wasreversed by E l i financ ial iusthution,61. Dwolla intended to deceive TradeHin by concealing these material fads".

6 2."T ra d el-lill d id . not k now th ese concealed ma te ria l fa cts a t the time it entered into itsrelationship with Dwolla and.ar the times Itpaid the amounts due and otherwisedischarged its obligations ..

6 3. If Trad elilill had know n tnese.concealed facts, it would. no t have entered into lherelationshi p with DwoUa ..

64. Dwolla continued to ' C . O ' I ceal these material facts during the TimePeriod, by notproviding any notice to Tredeflill that "credited" transactions were being reversed andby no r proy~diD1gany e xpla na rlc n for the re versa ls onc e TradefIill com num ica ted toDwolla

6 5. As a d irect r suit of Dwolla's concealment of mater ia l. f ac ts , TradefIill has beensubstannallydamaged, including' the $94,878.72 unjustifiably taken by Dwolla, As aresult of cash flowproblems directly (elated. to Dwolla's actions, Tradeflill was a18 '0forced to shu t. down operations on F ebruary ]3$ ;i012~ Ieadingto substantial d am age toits reputation and the less of the $1,000.000 property, bitcoin.com, bitcoin.eo andbitcoin.co, H Z "

66. In performing-the acts herein.alleged, Dwolla acted with malice, fraud or oppressionandwith the intent e o harm Tradeflill, thereby entitling. Tradehlill to an award ofpunitive damages hI art amount to be determined ~\trial, The malice, fraud oroppression was commiteed 'by an officer. director, managing agent or representative ofDwolla, acting 'within the .scope of his Of her employment,

i6Complaim..f{JI"Dam{t~~


17/19

m SEVENTH .CA IIS ..EOUTIaN2 (Restitu.tion after Resd~gjon)3; 61 ..Tradelfill reallages, and incerporares by referencethe allegations. of paragraphs 14 through .28 . 3 7., a nd 44 through '48 .jnclusive, 'as if fully set fo rth h erein. ..5 68 . Tr ade lf il l Is entitled 1:0 rescission of the comractuat relationship pursuant to Ca;lifornia6 Civil Code 1689 on ihti:groundsthat (a) Dwolla'sfraud induced Tradeflill to enter7 into the contraorual relationship; and (b) there was a iota] and material failure of8 'consideration.9 6 9. The consi de ra ti on lOJ"TradeHi]~' s payments and other obl igadons to Dwolla under,\ . . -

10 their con tr ac tua l r ela tionsh ip was suppo sed . to lnclud e the " no cha rgeback" policy . .A s1] 'd Jescri,bed above, there was a total failure to satisfy this. policy on Dwolla 's part.12 70. Tradelfill 'intends service ofthe summons and complaint in this action to serve as13 notic e.n f're sc issio n o f theeoutractual relationship and hereby demands that Dwolla14 restore full consid eration furnished by T ra d eHwtl for th e- servic es Dwolla provid ed .l5 TradeHilJ is also entitled to recover compensation for the damages-alleged inthis16 Complaint,17 EIGHTH CAUSE'OF ACTJ(t~'18 (Gonve.rsi~Jl)'19 . '7 ] " .T ra d el-lill re all a g es , a nd in co rp ora re s by re fe renee, th e allegations of paragraphs 120' through. 28,and 3 7 .jncIusive~ a s l:f fully se t forth-herein.21 72. Tra:d! ;Hil lol1 July 25 .2 01 ] a ttempte d ~O.withdraw $70,000 ill fund s from its Dwolla22 account tO I is.Bank of Am erica account, Dwana between July 21,. 2011 and . July 3023 2011 cornmunicated with Vendian, falsely and frauduleotly claimed that. TradeHill (o r24 its owners) was 8 1 . fraudulen! business and reversedthese transfers, As a result, DwoJla25 converted personal preperty of T ~.'ad eHm to its possession without any compensar ion26 provided to Tradelfill and without TradeHUI: 's .conseri t.27 73. Dwolla has m ad e no attem pt toaccount for th e $70 ~OOOt w rong fully c onverted a nd28 . Trnd e.HE]] 's.,attempfs to ]X~CClVerthe: funds h a ve b ee n fru itle ss.

17CQmljltt_iJjl'.f.(ji1)(lJ1U~~4fS


18/19

~ I 74. A s a result-ofDwolla's conversion, "Tradefnu was substantially.damaged. The loss of.2 th e $ 70 .OOO ,a lso c on trib uted to cash flow problems tIt Tradelfill .. As a result of cash3 flowproblems'directly relaxed to Dwolla's actions, Tradel-lill was also famed to shut4 down operations.on February ..13,20] 2,.leading t o substantial damage to it s reputation5 arid thetossof Ih,e$l.,OOO,OOO property, biteoin.com..bitcoin.co rind bitcoin.co.nz,6 75-.Ii1iperforming th e aces herein alleged, DwoHa acted with malice fraud '01' oppression7 and!with tJ1C intent t o harm Tradelfill, thereby entitling Tradelfdl to an award of8 punltive damages it] an amount tobe determined-at trial. Themalice, fraud o.~9 oppress] on ~ as c emm ined by an o :f Jj ce l' direc tor ~m a na ging a gent or representa ti ve of10 Dwol a , acting' w ith in the .seope ofh is or her employment] IJSlNXH CAlJSRDF AC'[ION12 (Defama.don)] .3 76 . 'fl.ltdeHill r ea lla g es , an d in corpora le s by reference, th ealleg ations ofparag raph s ~:~. thro ugh 28 and :3 7, wn.clustve, as : i : f fM ]~yse t forth herd n,'15 7 '7 .Dwolla communicated to Verid ian a defbmai.ory message daiming that T ra d oHU l w a s16 a fraud ulent business in ord er to reverse Trade"f f iU 's w ithd raw als, D wolla knew or17 should have know n that the m essage w as false and took no rea so na ble a ctio ns to p ro ve18 the UUtIl of the message ,19 78 . Th is d efam atory m essage w as comm unicated to VeridiulJ!a th ird party ; and is20 inherently harmful to TtndeHiLl!,g reputa tion. O n information an d be fie f, T ra d e lf ill.21 alleges that Dwolla's defamatory messagewas further cormrmnicated by Veridian to22 0rher banks and has .hindered its abili ty to. retai n financial services at other financi a l23 service providers. ' I r : a . d e H . l ! U \ s reputation COIlt.iJJU~S to sufferas . a result ofDwelle's24 defamatory message to Veridian,25 79 . In ad d ition to tfu.eharm t o Tn ldeHiU 's re pu ta tio n, Dwo lla 's d e fama to ry me ssa ge c aused26 $70~OOOin withdrawals to be reversed, 1\3 a result of cash flow problems directly27 rela ted to Dwolla'sacticns, Tradel-lill was a lso forced to .sh ut d ow n operations on28

18 .COJIJPi-atn.~ftJ"I'.V.ilmi1J,"'ffi"{


19/19

. 'd' : I234s6789 '10"[ 112'1 31415'1 61718]9202j,2 2232425';6-'2728

p e : E Y f u : a r y l3; 2~012, . lie: t1ding ) '..o$u:bsraiIt.iiil. dalmlgi; to ittHe,pntati0n: an d (he loss of the$ '1 ~OQOl)Of)property, biJl:601fi.C()ni.bitcdjn,,ctr~ind' bitoo~n,co,l~Z:.

SO.In performing rh e acts herein alleged . Dw olla ~LO [f5di tl i' ina l' icef fraud or oppressionand w : il th : rhe mtentto harm Tradd':'Iill, ~her6by enti'tling T1"a deHiH to an award ofIl~ln~tivel : a J . n a g e s , in an smeunt letbe determined at lIr.i~l. The malice.fraud D ropp re ss io n wa scommiued by a il 'o ff ic e r, d i rect c) r, managingagent o r ,[epresernuttive ofDwoll a, _ a ctin gw 'i th iri th e s co p e ( ) IJ h r n :s (~ r ,h,en~lllploy[l]elft.

P'Rt \ .YER FOR RELIEF,'W .h ereJore" T rad eflill pra ys fo r ju dgmen t ag~liilst]j)woJJ,a : E l ! S follows;'., '. -

A D~cltlJi:l1g:that the c~)iHractll~llelationship between T , ; a a e H m and Dwolla has, beenrescinded and o r d e . r . ] : n g the retuur of a ~ R COI]s:ide'rationp:revlol ' lsly paid by TradeDi ~.UoDwolla;

.J. F ind ing '[h at Dwclla w aiveil. its rIght io arbitratiorr underthe TeTiIl1hS o f Service in C f f : e c fdu ring; .~~ .pa r~ i.Gs loontD;~ \c tUaJ rel atlonshl p : ; .

APi.nding thatDwolla : isan emerprlseas.def ined by 18 U.S.C,'HH5l(4);A . Award,~I]jgcompensatory damages, the exacr'ameunt to be prevenat trial;A .Awavd~ng.civ,il d:alU~gCS .'C"O~t8 and. a:U0fne:y l ,s f.;eestmd.ei' 18 U .S:D . 196 '4(c ) , the exaCt

amOm1!l [0 b e d e birm i ne d ut trial;A .AWaTding.pnllit~ve d am ages, the exact iUDo. l1 l1}to be d eh e:rrrrin ed a t trial;A For Iutereston its dIlmag,es inan ari:1otJntperm'-itted by .~JIW,and It~ costs. ,of suit; andj., Forsuc.h further relief as]iljs Ceurt may det,\n(ljust and proper.

DATED: M areh 4. 2 ,0 l2

19CMlJ}It1J'Uj'i)'i" lJi( iJf(lJ;!ie!f

Documents

Tradehill v. Dwolla Et Al Complaint (Filed Copy)