While the actual litigation has very little to do with crypto, as the case is about the use of arbitration clauses, a crypto company is resolving a broader business issue.
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Coinbase's landmark Supreme Court hearing on Tuesday marked the crypto industry's first appearance before the country's highest court, but the actual hearing itself was far more important for consumers than for crypto.
The actual case is about the ability of companies to force consumers to adhere to arbitration agreements that a growing number of retail-facing businesses now impose on customers instead of bringing cases to court. And it goes far beyond crypto.
Specifically, Coinbase user Abraham Bielski said that the Electronic Funds Transfer Act requires the top U.S. cryptocurrency exchange to recredit his account after he was tricked into allowing a scammer to access his account and steal $31,000, Reuters said.
In another case, several former customers sued Coinbase after being tricked into paying $100 to enter a contest to win as much as $1.2 million in Dogecoin.
However, the case before the court has nothing to do with crypto theft or account security measures, but rather whether Coinbase can force Bielski into arbitration. The company says its customer agreement mandates arbitration, but judges and then appellate judges allowed both lawsuits to go to court. Which also isn't what the Supreme Court is deciding.
Stay or No Stay
The specific issue before the court is very narrow: Coinbase says it is entitled to an automatic stay while the appeal is being heard. The lower courts said it does not, even though the Federal Arbitration Act (FAA) does give companies special treatment in that they can appeal before a case is over.
Broadly, businesses say arbitration is faster and cheaper than court battles, while consumer advocates say it gives businesses a big advantage.
If Coinbase loses, all sorts of companies could be forced into court battles that are not only longer and more expensive, but can come with embarrassing publicity and bigger awards.
"If [the plaintiffs] try and force discovery in the district court, and then they get access to discovery, which may have embarrassing details, it could spill out into the newspapers," Coinbase lawyer Neal Katyal told the justices, Yahoo Finance reported. He said:
"That's exactly the thing that you arbitrate for — the reason the parties agree in the first place is to have that kind of confidentiality."
Hassan Zavareei, an attorney for Bielski, told the court:
"When companies like Coinbase seek to force consumers into arbitration and district courts reject the attempt, those companies shouldn't be allowed to slow-roll litigation through special automatic stays that appear nowhere in the Federal Arbitration Act."
Still, reports suggest that Coinbase got the worst of the hearing, with many judges appearing to come down on the plaintiff's side. That included conservative Chief Justice John Roberts and liberal Justice Elena Kagan, who both suggested that the special privileges the FAA brings in terms of starting appeals while the case is ongoing is "a pretty valuable thing," in Kagan's words.
"Isn't that enough?" Roberts asked.
Broadly, only Justice Brett Kavanaugh seemed to favor Coinbase's position, with most of the rest appearing skeptical that a right of automatic stay unmentioned in the law exists.
But win or lose, a crypto company has brought the industry another small step into the business mainstream.
