Crypto exchange Coinbase asks Supreme Court to compel disgruntled customers to pursue arbitration

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An attorney for cryptocurrency exchange Coinbase told the Supreme Court on March 21 that current customer disputes shouldn’t move forward in the lower courts while appellate courts have yet to rule on the company’s request to divert those cases to arbitration panels.

Coinbase finds itself at the Supreme Court because it prefers the arbitration provided for in user agreements to the judicial system, and the U.S. Court of Appeals for the 9th Circuit has refused its requests to move class-action lawsuits to arbitration.

Companies often prefer arbitration to the courts, saying the process resolves cases with greater speed and reduced expense. Some consumer activists prefer the courts because, in their view, the judicial system provides consumers with more options and is less likely to side with the companies being sued.

San Francisco-based Coinbase operates one of the largest cryptocurrency exchange platforms in the United States, on which users can buy, sell, and transact in various digital currencies, including bitcoin, ethereum, and dogecoin. To use the platform, an individual must first sign Coinbase’s user agreement and agree to submit “any dispute” to arbitration.

In one pending class action brought against the company by aggrieved Coinbase users, the company pushed to relocate the litigation to arbitration.

Coinbase user Abraham Bielski had sued the company, claiming that a criminal deceived him and drained upward of $31,000 from his trading account.

Coinbase stated that it warned customers about this kind of scam in its user agreement, but Bielski said the company showed little interest in his plight after he sought redress for the fraud. The company argues that because Bielski signed the user agreement, which requires arbitration of disputes, he should have to proceed with arbitration.

Forcing Arbitration

U.S. District Judge William Alsup refused to send the litigation to arbitration, finding that the user agreement violated the general principles of contract law and therefore couldn’t be enforced. Both class-action lawsuits are still proceeding in federal district courts after judges declined to halt them.

Coinbase appealed the rulings, denying compelled arbitration, and sought to halt the lawsuits while its appeals were pending, but the 9th Circuit refused to rule for the company.

Still hoping to force arbitration, Coinbase filed emergency applications with the Supreme Court. The court denied the applications in August 2020 but in December 2022 agreed to consider the company’s petition on a non-emergency basis.

Coinbase attorney Neal Katyal told the Supreme Court on March 21 during oral arguments that dwelled on procedural rules that the company was entitled to a stay of the lawsuits.

“When a party appeals the denial of a motion to compel arbitration, it stays litigation,” he said.

“That result follows from the centuries-old divestiture rule, as well as by Congress’s choice to adopt an asymmetric interlocutory rule in FAA [Federal Arbitration Act] Section 16(a).

“The filing of a notice of appeal divests the district court of its control over those aspects of the case involved in the appeal. The only question today is whether district court proceedings are aspects of the case involved in the appeal.”

Chief Justice John Roberts suggested to Katyal that his client was in a better position than he was willing to admit.

“It is a huge benefit to you to be able to take an interlocutory appeal, right?” Roberts said.

An interlocutory appeal is when a party asks an appellate court to review a decision of a trial court while the lawsuit is still before the trial court.

“Why is it unreasonable to think that Congress thought that was enough? I mean, they didn’t say anything about a stay,” the jurist said.

“They gave you the most valuable right you could have. You don’t have to wait until the case is over—you can go up right away.

“Why isn’t this enough?”

‘Rights … Could Be Destroyed’

Justice Brett Kavanaugh asked Katyal what would happen if his side doesn’t win the case.

“All sorts of rights in the interim could be destroyed,” the lawyer said.

“Take, for example, just the simplest thing, discovery. So if they try and force discovery in the district court, and then they get access to discovery, which may have embarrassing details, it could spill out into the newspapers—we see examples of that all the time … in any given discovery litigation.

“That’s exactly the thing that you arbitrate for. The reason the parties agree in the first place is to have that kind of confidentiality. That’s just one example of many.”

Bielski’s attorney, Hassan Zavareei, disputed Katyal’s analysis of the FAA.

“Congress says what it means and it means what it says,” Zavareei said.

“Congress says nothing in Section 16 about mandatory stays.”

He also noted that, in a previous precedent, the court found that “Congress would not, without clearly expressing such a purpose, deprive the courts of their customary power to order stays under review.”

“Under basic rules of statutory construction, then, Section 16 cannot be said to harbor a hidden automatic stay provision,” Zavareei said. “And as a practical matter, this means that the courts retain their equitable power to use their discretion to issue stays when appropriate, a power that has been vested in this court since the founding of the republic.”

The Supreme Court is expected to issue a ruling by June.

This article by Matthew Vadum appeared March 22, 2023, in The Epoch Times.