U.S. Supreme Court divided over Coinbase arbitration dispute

By Andrew Chung and John Kruzel

WASHINGTON (Reuters) -U.S. Supreme Court justices on Tuesday appeared divided over a bid by cryptocurrency exchange Coinbase (NASDAQ:) Global Inc to halt customer lawsuits, including by a user who sued after a scammer stole money from his account, as it pursues an effort to move the disputes out of courts and into private arbitration.

The justices heard arguments in Coinbase’s appeal of lower court decisions letting the proposed class action lawsuits proceed while it presses its contention that the claims belong in arbitration.

Companies generally prefer to arbitrate claims because the process is cheaper and faster than litigation in court, which can be harder to fight and carries a greater risk of hefty damages awards.

During arguments, some justices expressed doubt over Coinbase’s arguments while others raised concerns about the consequences for defendants seeking to arbitrate customer claims.

Conservative Chief Justice John Roberts said that Congress already provided a “huge benefit” by allowing immediate appeals from a denial of arbitration instead of having to wait for a final judgment in the case.

“Why isn’t that enough?” Roberts asked Coinbase’s attorney Neal Katyal.

“You know you’ve gotten a pretty valuable thing – you just haven’t gotten the whole ball of wax,” liberal Justice Elena Kagan told Katyal.

Conservative Justice Brett Kavanaugh raised the problem of defendants settling cases to avoid the burden of litigation.

“They say they have a congressionally afforded right to an appellate determination of whether arbitration is the appropriate forum and they’re not really going to be able to get that if they’re coerced into a massive settlement,” Kavanaugh told a lawyer for the plaintiffs, Hassan Zavareei. “I think that’s realistic.”

Coinbase’s exchange allows users to transact in digital currencies 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 dispute resolution proceedings through arbitration, action in trial courts must come to a halt when a denial of a request to compel arbitration is appealed.

One of the cases involves a California lawsuit by customer Abraham Bielski, who alleged that a scammer stole more than $30,000 from his Coinbase account in 2021. The suit accused the company of violating the Electronic Funds Transfer Act by not investigating or recrediting Bielski’s account.

In the other suit, former users accused the company of violating California’s false advertising law by duping 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 into arbitration, as the company argued the user agreements required. While Coinbase immediately appealed those decisions, the San Francisco-based 9th U.S. Circuit Court of Appeals in 2022 refused the company’s requests to put further litigation on hold pending those appeals.

After Coinbase asked the Supreme Court to hear the case, a trial judge in the sweepstakes case halted those proceedings until the end of March.

Coinbase told the Supreme Court that allowing the cases to proceed in court when it might yet win the right to arbitrate the claims “defeats the purpose of arbitration.”

A ruling is due by the end of June.