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Coinbase Loses Bid to Force Arbitration of Crypto Theft Lawsuit

April 11, 2022, 3:51 PM

Coinbase Inc. lost its motion to compel arbitration of a potential class action alleging the cryptocurrency exchange platform failed to protect its users’ funds from unauthorized transfers, after a federal court in California said the arbitration agreement in Coinbase’s user agreement is unconscionable.

Abraham Bielski was targeted by a scammer who claimed to be a PayPal representative. Bielski granted remote access to his Coinbase account, which was used to transfer assets worth more than $31,000 out of Bielski’s digital wallet. He claims that Coinbase’s customer service after the theft was unresponsive and ineffective.

Bielski brought claims against Coinbase for violations of the Electronic Funds Transfer Act and Regulation E. He seeks to have the case certified as a class action.

The U.S. District Court for the Northern District of California rejected Coinbase’s motion to compel arbitration of Bielski’s claims on April 8.

When he signed up for the account, Bielski signed Coinbase’s user agreement containing an arbitration provision and a delegation clause stating that the enforceability, scope, and validity of the arbitration clause are issues for the arbitrator to decide.

Coinbase’s arbitration provision “addresses only those disputes that have previously gone through the pre-arbitration complaint procedure,” the court said. “Because only Coinbase users can raise a complaint though the pre-arbitration complaint procedure, the arbitration provision imposes no obligation on Coinbase itself to submit its disputes with users to binding arbitration.”

The user agreement “imposes a burdensome and unfair pre-arbitration dispute process on users and sends their complaints, but not Coinbase’s complaints, to binding arbitration,” the court said. “The lack of mutuality in Coinbase’s complaint process is expressly incorporated into the delegation clause,” which “imposes an onerous, unfair burden beyond that of a typical delegation clause,” the court added.

Judge William Alsup concluded that the arbitration agreement and delegation clause are unconscionable and unenforceable under California law.

Matthew D. Carlson of Orchard Park, N.Y., represents the plaintiff. Keker, Van Nest & Peters LLP represents Coinbase.

The case is Bielski v. Coinbase Inc., N.D. Cal., No. 3:21-cv-07478, 4/8/22.

To contact the reporter on this story: Brian Flood in Washington at bflood@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Peggy Aulino at maulino@bloomberglaw.com