Supreme Court sides with Coinbase in arbitration dispute over ex-users’ crypto losses

The Supreme Court has ruled that a lower court must halt trial proceedings against Coinbase while it appeals lawsuits brought by users who claim the crypto exchange platform violated California law and did not protect against a loss in the crypto market of more than $30,000.

The high court, in a 5-4 ruling Friday, sided with Coinbase, saying its right to appeal to the 9th U.S. Circuit Court of Appeals in an attempt to enforce arbitration should pause all lower court proceedings.

Business groups say it’s a win for the industry, allowing them to avoid costly litigation.

“[I]t makes little sense for the litigation to continue in the district court while the appeal is pending,” wrote Justice Brett M. Kavanaugh for the court’s majority.

He said allowing the district court, which ruled against Coinbase, to proceed with trial while the company is appealing to the circuit court over arbitration claims, creates the “worst possible outcome” … “litigating a dispute in the district court only for the court of appeals to ’reverse and order the dispute arbitrated.’”

Justice Kavanaugh also noted the majority of circuit courts require lower court proceedings to be halted during such an appeal.

He was joined by Chief Justice John G. Roberts Jr. and Justices Samuel A. Alito Jr., Amy Coney Barrett and Neil M. Gorsuch.

The liberal wing of the court — plus Justice Clarence Thomas — disagreed.

Justice Ketanji Brown Jackson wrote a dissent arguing that lower courts have discretion whether or not to halt the proceedings during the appeal process — and that should be decided case by case.

“This discretionary decisionmaking promotes procedural fairness because it allows for a balancing of all relevant interests,” Justice Jackson wrote.



She was joined by Justices Sonia Sotomayor and Elena Kagan.

Justice Thomas joined the dissent, in part, with respect to her argument that the majority is imposing a mandatory rule when courts have historically used discretion in deciding whether to stay proceedings.

Coinbase’s attorney had told the justices that the trial proceedings should be put on hold while an appellate court decides whether a motion to compel arbitration is required to settle the lawsuits under the Federal Arbitration Act, which is silent about whether a court proceeding must be halted.

A lawyer for Abraham Bielski, a crypto user who had sued, argued that Congress was explicit in other statutes when it required proceedings to be halted, suggesting it was not mandatory here.

The legal battle stemmed from two cases against Coinbase in the Northern District of California, where the district court denied the company’s request to compel arbitration. The federal court also declined to stay lower court proceedings while Coinbase appealed the arbitration decision to the appellate court.

In the first case, Mr. Bielski sued Coinbase after he fell for a scam, having given someone pretending to be a PayPal representative remote control of his computer and losing roughly $31,000 in cryptocurrency. He claims that Coinbase should reimburse him for the loss.

The second claim was brought by former users of the company claiming it violated California law when it held a “Dogecoin Sweepstakes” in 2021. The users accuse Coinbase of tricking them into paying hundreds of dollars to enter the contest for a shot at up to $1.2 million in Dogecoin cryptocurrency.

All parties agreed to the User Agreement, which states that “any dispute” would be resolved through arbitration, according to court documents.

The National Federation of Independent Business, a small business advocacy group, cheered the ruling, saying it prevents businesses from having to spend on litigation costs while trying to enforce arbitration.

“The financial burden of a lawsuit can be devastating to a small business, many of whom do not have attorneys on staff, nor the time or resources to commit to a trial,” said Beth Milito, executive director of the group’s legal center. “This is why arbitration is so important. The Supreme Court’s ruling today will protect small businesses from costly litigation when the case will be better resolved outside of a courtroom.”