Coinbase Argues an Arbitration Case in U.S. Supreme Court as Crypto Makes Its Debut

Coinbase (COIN) argued at the U.S. Supreme Court on Tuesday that its disputes over forcing customers into arbitration should freeze the courts while the arguments play out – a moment that breaks legal ground for crypto with the industry’s first high court appearance.

The case itself has little direct effect on the business of digital assets, though it could be significant for Coinbase and other crypto companies when they clash with clients. The crypto exchange essentially argued to the justices that when a court rules that a customer deserves to settle a dispute in a courtroom instead of the arbitration outlined in their user agreement, a company appeal should halt that case from progressing through the courts until the appeal is decided.

“Congress did something very unusual” by granting this power to immediately appeal when a court denies a forced arbitration, said Neal Katyal, a lawyer representing Coinbase, who argued there’s a “background rule” establishing that the law doesn’t allow for courts to keep going if it’s used. If the customers get to move into the phase where information and evidence is exchanged, a company could be “coerced into a massive settlement” as embarrassing information comes to light – sometimes in the press – negating the purpose of arbitration.

“That toothpaste can’t later be put back into the tube,” he said.

In Tuesday’s case, Coinbase Inc. v. Bielski, customer Abraham Bielski had initially accused Coinbase of lax protections when a scammer stole $31,000 from his account. A court found that he could go ahead and pursue that complaint in the courts, which Coinbase appealed. When the matter kept moving in court, the company argued its appeal should have stopped it.

“The entire cryptocurrency market is collapsing under our feet,” said Hassan Zavareei, who represented Bielski, arguing that purposeful and automatic delays by a company could rob a person’s chance to go after the company if the business fails during the wait. A plaintiff could “wonder whether Coinbase is going to be around” while awaiting the appeal.

As for Coinbase’s argument that Congress meant for the automatic “stay” – a legal delay – he said that it’s just not there.

“Congress says what it means and means what it says,” Zavareei said.

Chief Justice John Roberts said this appeal power offered companies a “huge benefit” that they don’t have to wait until a case is over.

“This is what they gave you,” he said. “Why isn’t that enough?”

Most of the justices peppered Coinbase’s lawyer with difficult questions, and often interrupted his responses. Justice Elena Kagan was particularly critical.

In the Coinbase case, she said, “This district court is not stepping on the appeals court,” adding that “the two can go their merry ways.”

Justice Brett Kavanaugh, on the other hand, at one point praised the Coinbase case for making a "strong point" about related statutes demonstrating congressional intent for this one.