The Supreme Court agreed with cryptocurrency exchange Coinbase on June 23, ruling 5–4 that 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.
The decision is expected to reinforce the ability of companies to direct customer disputes to the arbitration process, as opposed to the court system.
Coinbase appealed to 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 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.
Justice Ketanji Brown Jackson wrote the sole dissenting opinion, which was joined in full by Justices Sonia Sotomayor and Elena Kagan, and in part by Justice Clarence Thomas.
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 wanted to relocate the litigation to arbitration.
Coinbase user Abraham Bielski sued the company, claiming that a criminal deceived him and drained $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 mandates arbitration of disputes, he should have to proceed with arbitration.
U.S. District Judge William Alsup, a Clinton appointee, 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 reportedly still proceeding in federal district courts after judges declined to halt them.
Coinbase tried to halt the lawsuits while its appeals were pending, arguing that under the Federal Arbitration Act, legal actions pending in the courts must be placed on hold while a denial of a request to compel arbitration is being appealed.
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. The court heard oral arguments on March 23.
In the new majority opinion, Justice Kavanaugh sided with Coinbase.
“When a federal district court denies a motion to compel arbitration, the losing party has a statutory right to an interlocutory appeal,” he wrote. An interlocutory appeal is one that is not final and that is made while a legal action is in progress.
“The sole question here is whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing. The answer is yes: The district court must stay its proceedings.”
After Coinbase appealed the denial of its motion to force arbitration, “the District Court was required to stay its proceedings,” Kavanaugh wrote.
Kavanaugh said letting the courts move forward while an arbitration appeal is pending could have adverse consequences for the litigants.
“[M]any of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along,” he wrote.
“Absent a stay, parties also could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration. That potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge [Henry J.] Friendly called ‘blackmail settlements.’”
And from the “Judiciary’s institutional perspective … allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources—which could be devoted to other pressing criminal or civil matters—on a dispute that will ultimately head to arbitration in any event. That scenario represents the ‘worst possible outcome’ for parties and the courts: litigating a dispute in the district court only for the court of appeals to ‘reverse and order the dispute arbitrated.’”
The Supreme Court reversed the decision of the 9th Circuit and remanded it to that court “for further proceedings consistent with this opinion,” adding that “we anticipate” the circuit court “will proceed with appropriate expedition when considering Coinbase’s interlocutory appeal from the denial of the motion to compel arbitration.”
In her dissent, Justice Jackson wrote that the majority opinion “invents” a new rule that favors arbitration over the judiciary as a means of resolving disputes.
“This mandatory-general-stay rule for interlocutory arbitrability appeals comes out of nowhere,” she wrote.
“No statute imposes it. Nor does any decision of this Court. Yet today’s majority invents a new stay rule perpetually favoring one class of litigants—defendants seeking arbitration.”
“Now, any defendant that devises a non-frivolous argument for arbitration can not only appeal, but also press pause on the case—leaving plaintiffs to suffer harm, lose evidence, and bleed dry their patience and funding in the meantime,” Jackson wrote.
“To confer that power on a class of litigants, based on blanket judgments resolving competing policy concerns, is Congress’s domain, not ours. And where Congress is silent, the job of managing particular litigation, in light of the concrete circumstances presented, belongs to the judge closest to a case.”
