(Reuters) – The U.S. Supreme Court on Friday upheld cryptocurrency exchange Coinbase Global Inc.’s bid to halt customer lawsuits while it pursues appeals aimed at moving disputes out of court and into private arbitration, which companies often prefer over litigation.
The justices, in a 5-4 decision, overturned a lower court decision involving a user who sued after a fraudster stole money from his account. The lower court had allowed a proposed class action to proceed while Coinbase appealed, arguing that the claims belong in arbitration. The judges rejected a second case that Coinbase had asked it to review.
Companies generally prefer to arbitrate claims because the process is cheaper and faster than litigation in court, which can be more difficult to fight and carries a greater risk of hefty damages awards.
Coinbase̵
7;s exchange allows users to trade in digital currencies such as bitcoin and ether. The company claims that its user agreement requires disputes to be resolved by arbitration and that under a law called the Federal Arbitration Act, which governs dispute resolution procedures by arbitration, actions in trial courts must be stayed when a denial of a request to compel arbitration is appealed.Conservative Judge Brett Kavanaugh, along with four other conservatives, wrote the ruling.
Judge Kavanaugh warned of the risk of allowing trial courts to proceed while the arbitration issue plays out on appeal, saying such a scenario could result in the benefits of arbitration such as efficiency and cost savings being “irreversibly lost — even though the appeals court later concluded that the case had actually heard in arbitration all the time.”
The court’s three liberal justices and conservative Justice Clarence Thomas dissented.
Liberal Justice Ketanji Brown Jackson said in the dissenting opinion that the ruling invented a new rule that “consistently favors” the party seeking arbitration.
“Now, any defendant who comes up with a frivolous argument for arbitration can not only appeal, but press for a stay of the case — causing plaintiffs to suffer harm, lose evidence, and bleed their patience and funding in the meantime,” Judge Jackson wrote. .
Katherine Minarik, Coinbase’s vice president of litigation, welcomed the ruling.
Minarik said the decision “recognizes that companies like Coinbase, as well as our customers, bear significant burdens when matters that belong in arbitration proceed instead in lengthy and expensive court proceedings. It makes sense for lower court litigation to be paused while an appeals court decides whether a case at all belongs in the court.”
One of the cases involved a lawsuit filed in California by customer Abraham Bielski, who alleged that a fraudster stole more than $30,000 from his Coinbase account in 2021. The lawsuit accused the company of violating the Electronic Funds Transmission Act by failing to investigate or recredit Bielski’s account.
In the second lawsuit dismissed by the court on Friday, former users accused the company of violating California’s false advertising law by tricking them into paying to enter a 2021 lottery that offered prizes in dogecoin, a type of cryptocurrency.
In both cases, federal judges had refused to compel the claims to arbitration, because the company argued that the user agreements were required. While Coinbase immediately appealed those decisions, the San Francisco-based 9th US Circuit Court of Appeals in 2022 denied the company’s request to put further litigation on hold pending those appeals.
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