US Supreme Court rules in favor of Coinbase in arbitration dispute

The U.S. Supreme Court has ruled in favor of digital asset exchange Coinbase (NASDAQ: COIN), backing its request to halt customer lawsuits while it pursues appeals to move the disputes from the courts to private arbitration.

Five of the nine Justices voted in support of Coinbase’s request, overturning a lower court’s rulings.

One case involved a user who sued Coinbase after a scammer stole money from his account. The U.S. District Court Northern District Of California initially denied Coinbase’s motion to compel arbitration in the case of Abraham Bielski et al. v Coinbase, a ruling the exchange then appealed. While the appeal was pending, Coinbase filed a motion requesting a stay (postponement) of the trial until the outcome of the appeal was decided—on June 7, 2022, the lower court denied this motion.

The other lawsuit relates to David Suski, a Coinbase user who filed a class-action against Coinbase for an allegedly misleading Dogecoin campaign. Suski argued he was deceived by Coinbase to trade Dogecoin and claimed to have been motivated to trade by Coinbase’s $1.2 million sweepstakes offer.

In both cases, lower court judges denied Coinbase’s attempts to compel the claims into arbitration, which the exchange said was required under its user agreements, and also denied Coinbase’s motions for stays pending its appeal of the arbitration motions.

Coinbase took this argument to the Supreme Court in December, and the Justices agreed to hear the case.

When delivering their judgment on the matter on June 23, Justice Brett Kavanaugh, who wrote the ruling on behalf of the court, noted the risks of allowing trial courts to proceed while the arbitration question plays out on appeal, saying efficiency and cost savings could be “irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along.”

“The sole question here is whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing,” said Kavanaugh. “The answer is yes: The district court must stay its proceedings.”

Coinbase’s chief legal officer Paul Grewal took to Twitter to call the decision an “important win.”

“We are grateful to the Supreme Court for its careful review. Another example of why I believe in the American court system. The rule of law is sometimes slow, and at times disappointing. But it remains our last, best hope in an imperfect democracy,” said Grewal on Friday.

While it may not have direct implications on the digital asset industry, the ruling reinforces the ability of companies to channel customer and employee disputes into arbitration and also serves as a welcome respite for Coinbase, as it faces a daunting amount of court time in the coming months.

The embattled digital asset exchange is involved in an ongoing legal back-and-forth over regulatory rule-making with the Securities and Exchange Commission (SEC), who, on June 6, also sued Coinbase for allegedly violating several securities laws, including operating as an unregistered exchange.

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