July 21, 2024

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The US Supreme Court rules in favor of Coinbase in the arbitration dispute

The US Supreme Court rules in favor of Coinbase in the arbitration dispute

Written by Andrew Chung and John Crozel

WASHINGTON (Reuters) – The U.S. Supreme Court on Friday backed cryptocurrency exchange Coinbase Global Inc’s attempt to halt customer lawsuits while it pursues appeals with the goal of taking disputes out of court and into private arbitration, which companies often prefer over litigation.

The justices, in a 5-4 decision, overturned a lower court ruling related to a user who filed a lawsuit after a fraudster stole money from his account. The lower court allowed a proposed class-action lawsuit to begin while Coinbase pressed its appeal claiming that the claims belonged to arbitration. The judges dismissed a second case Coinbase had asked it to review.

Companies generally prefer claim arbitration because the process is cheaper and faster than court litigation, which can be more difficult to fight and carries greater risks of huge damages.

Coinbase allows users to transact in cryptocurrencies such as Bitcoin and Ether. The Company asserts that its User Agreement requires disputes to be resolved through arbitration and that under a law called the Federal Arbitration Act, which governs procedures for settling disputes through arbitration, proceedings in lower courts must cease when a request to compel arbitration is denied.

Conservative Justice Brett Kavanaugh, along with four fellow conservatives, wrote the ruling.

Kavanaugh warned of the dangers of allowing lower courts to move forward while the arbitration question begins to appeal, saying such a scenario could cause the “irreversible loss of arbitration’s benefits such as efficiency and cost savings — even if an appeals court later concludes that the case was in fact his.” arbitration all the time.”

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The court’s three liberal justices and conservative justice Clarence Thomas objected.

In the dissenting opinion, liberal Justice Kitangi Brown Jackson said the ruling had invented a new rule that “always favored” the party seeking arbitration.

“Now, any defendant who creates an inconsequential argument to arbitration can not only appeal, but can also temporarily press the case—leaving plaintiffs hurt, losing evidence and bleeding patience and funding in the meantime,” Jackson wrote.

Catherine Minarik, Coinbase’s vice president of litigation, welcomed the ruling.

The decision, Minarik said, “recognizes that companies like Coinbase, as well as our customers, incur significant burdens when cases that belong to an arbitration process instead drag on in lengthy and expensive court proceedings. It stands to reason that a lower court case should be paused while the appeals court decides whether to The case belongs to the court at all.”

One of the cases involved a lawsuit in California by client Abraham Bielski, who alleged that a fraudster stole more than $30,000 from his Coinbase account in 2021. The lawsuit accused the company of violating the Electronic Funds Transfer Act by not investigating or re-certifying Bielski’s account.

In the other lawsuit dismissed by court on Friday, the former users accused the company of violating California’s false advertising law by tricking them into paying to participate in a 2021 sweepstakes that offered prizes in dogecoin, a type of cryptocurrency.

In both cases, federal judges refused to force the claims to arbitration, with the company arguing that user agreements were required. While Coinbase immediately appealed those decisions, in 2022 the San Francisco-based U.S. Circuit Court of Appeals for the 9th Circuit denied the company’s requests to put further lawsuits on hold pending those appeals.

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(Reporting by Andrew Chung in New York and John Crozel in Washington; Editing by Will Dunham)