Coinbase High Court Win Hits at Arbitration-Settlement Strategy

A split US Supreme Court decision allowing Coinbase Global Inc. to pause a lawsuit while it appealed a dispute over sending claims to arbitration will affect a broad array of cases and potentially weaken plaintiffs’ leverage in settlement talks, attorneys said.

The justices’ 5-4 ruling last week came in litigation demanding that the cryptocurrency exchange platform compensate a user who said he lost $31,000 after a scammer gained remote access to his account. Resolving a circuit split, the majority found that underlying litigation can be stayed while an appeal goes forward challenging the denial of a motion to compel arbitration.

Attorneys said the opinion’s impact on legal strategies will reach a wide range of cases, including data privacy and employment lawsuits, as companies continue to use arbitration clauses to keep claims out of court and funnel them into private dispute resolution.

Critics of the ruling are concerned it could allow cases to drag out and harm plaintiffs’ power to negotiate settlements.

“This ruling encourages defendants to file semi-frivalous motions to compel arbitration because even if they lose, they win, because they get to kick the can down the road for two years by taking an appeal,” said Matt Borden, a partner at BraunHagey & Borden LLP who is representing litigants in a crypto theft class action against Coinbase.

Others, however, say it will help make legal proceedings more efficient.

“The idea is that arbitration is a much more efficient, less expensive, less time consuming process, so the parties agree, if we have a dispute, let’s go to arbitration and handle it,” said Matthew Korn, a management-side litigator at Fisher & Phillips LLP.

Attorneys for Coinbase redirected a comment request to the company, which didn’t respond before publication.

Changing Legal Strategy

The ruling protects businesses from bearing the costs associated with ongoing litigation like expensive discovery requests, which have forced companies to settle, said Ron Chapman Jr., an employer-side attorney for Ogletree, Deakins, Nash, Smoak & Stewart PC.

“In the past, cases continue to be litigated even while on appeal for an arbitrability issue, the cases may have been settled because of ongoing litigation,” Chapman said. “Whereas now, we’re more likely to get to a ruling from the court of appeals as to the enforceability of the arbitration agreement.”

However, plaintiff’s attorneys like Borden and Adam Polk, of Girard Sharp LLP, said there’s concern that companies will use appeals of rulings on motions to compel to delay litigation longer than plaintiffs can bear.

“This ruling is a real problem, and as somebody who represents consumers and employees in these type of cases, it’s going to impact how I evaluate which cases I take on in the future,” Polk said, in reference to defendants that might appeal those motions without good cause.

Fewer people are likely to file direct claims against a company they have an arbitration agreement with, and more might start considering mass arbitration filings given the ruling, he said.

Under mass arbitration, consumers or workers concurrently file thousands of individual demands on businesses for arbitration. If companies don’t comply, the claimants can file a petition to compel arbitration in federal court. It’s been used for worker misclassification claims against gig comanies like DoorDash Inc. and Postmates Inc., as well as consumer biometric privacy litigation against Samsung Inc.

The approach has become increasingly attractive to plaintiffs looking to circumvent class action waivers that businesses place in employment or consumer agreements.

Unanswered Questions

The Supreme Court’s decision adds to decades of precedent bolstering arbitration protections that favor companies. But it leaves some unanswered questions, too, like how rigidly courts will interpret the automatic stay that takes affect once a motion to compel denial is appealed.

“We like to think that the law is black and white, and there are right answers and wrong answers, but there often is room for argument, and that’s where judges come into play. And they have to make decisions based on the information available to them, so because they’re human beings, from time to time you get different results, even over the same arbitration agreement,” Chapman said.

Borden said district courts “are in a far better position to understand whether the case really merits being stayed or not.”

A case could lose crucial evidence if discovery is delayed while a witness is on her deathbed, for example, as Justice Ketanji Brown Jackson wrote in the dissent.

While Jackson’s discovery hypothetical is plausible, any potential issues left open by the ruling will be addressed by courts down the road, said Stuart Gerson, a defense-side litigation attorney at Epstein Becker & Green PC. He previously served as acting attorney general under the Clinton administration.

“Maybe in the future, some question of modifying the stay to account for extraneous circumstances might be on the table,” he said.

The case is Coinbase, Inc. v. Bielski, U.S., No. 22-105, decided 6/23/23.