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Coinbase asks high court to halt user suits

One of the largest crypto exchanges in the world is fighting to keep lawsuits from former users out of the courts.

WASHINGTON (CN) — A cryptocurrency giant asked the Supreme Court on Wednesday to pause two lawsuits against it to stave off litigation and discovery while it pursues an appeal. 

Coinbase — an online cryptocurrency exchange valued at nearly $86 billion at its debut on Wall Street last year — wants to force former users suing the company to settle out of court based on an arbitration agreement within its user agreement that all account holders must agree to. The company — which was founded in 2012 — is one of the largest global crypto exchanges. 

Abraham Bielski sued Coinbase after he lost over $31,000 from his account in a scam. Bielski gave an individual who claimed to be a representative of payment processing site PayPal access to his account.

Bielski attempted to contact Coinbase after the fraud but was unable to ever reach a human representative. According to Coinbase, this specific scam is warned about in its user agreement as well as a delegation clause compelling arbitration. 

A federal judge, however, ruled that Bielski did not have to enter arbitration regardless of the delegation clause. U.S. District Judge William Alsup said the agreement did not adhere to general contract principles and therefore was unenforceable. 

Coinbase requested that the district court halt further court proceedings pending appeal of its ruling invalidating the arbitration agreement. The company wants to prevent litigation and discovery from starting in the case before its appeal is complete. The district court denied the stay motion, and the Ninth Circuit turned down an emergency stay as well. 

The company was also sued by David Suski and other former users in a class action that resulted from a giveaway it ran in early June 2021. While participants in the sweepstakes — which had prizes up to $1.2 million in Dogecoin — did not have to be users to win, they had to be users to claim any prizes. 

Similar to Bielski’s case, Coinbase was unable to convince a district court to compel Suski into arbitration. The company was again denied a stay at the Ninth Circuit. 

Now at the high court, the company is requesting the justices stay the district court rulings and take up the case to challenge the Ninth Circuit’s stay denials. According to Coinbase, it is entitled to an automatic stay. 

“Because Coinbase’s arbitrability appeal automatically ousted the district court’s jurisdiction to proceed before the appeal is resolved, Coinbase is entitled to an automatic stay of district court proceedings,” Neal Katyal, an attorney with Hogan Lovells US representing Coinbase against Bielski, wrote in the company's application.

Coinbase is challenging the Ninth Circuit’s rule that does not automatically grant stays in a non-frivolous appeal of a motion to compel arbitration. The company contends that this ruling conflicts with how most other circuits rule and is a violation of the Federal Arbitration Act. 

“As the majority of circuits reaching the question have reasoned, when the denial of a motion to compel arbitration is being appealed, the entire purpose of the appeal is to decide whether the case should proceed in district court or in arbitration,” Kathleen Hartnett, an attorney with Cooley representing Coinbase against Suski, wrote in the application for that case. “Thus, allowing district court litigation to continue while the question of arbitrability is on appeal impermissibly permits the district court, in substance, to retain jurisdiction over the issue on appeal and thwarts the efficiency rationales underlying the FAA.” 

The company claims that the court should address the question because three circuits are nullifying arbitration clauses and undermining the FAA. 

“In three circuits, including the outsized Ninth Circuit, arbitration clauses can be effectively nullified while an appellate court considers the merits of an arbitrability appeal, undermining the FAA’s ‘emphatic federal policy in favor of arbitral dispute resolution,’” Katyal wrote. “All the protective features of an arbitration clause, including avoiding the costs of litigation and the burdens of discovery, can be stripped away during the pendency of an appeal. “ 

Without the stay, Coinbase says it will face irreparable harm from the burdensome discovery compelled by the suits. 

Coinbase not only asked the court to halt lower court proceedings, but it also asked the justices to review the Ninth Circuit’s ruling in an expedited manner. 

“Because this case concerns the standard governing stays pending appeal, the question presented in this case will remain live only until the Ninth Circuit issues its mandate in Coinbase’s underlying appeal,” Katyal wrote. “After Coinbase’s appeal is resolved, the dispute over the proper legal standard for a stay pending appeal will be moot.” 

Bielski and Suski have yet to respond to the applications. It is not clear when the justices might respond to Coinbase’s stay requests. 

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