(CN) — A federal judge ruled Friday that Coinbase cannot use arbitration to settle claims of one of its customers who sought help in vain after he was bilked out of about $31,000 in cryptocurrency.
Coinbase attempted to circumvent confronting the claims it had violated the Electronic Funds Transfer Act, citing its user agreement that requires arbitration to settle disputes regarding instances of fraud and other issues.
But U.S. District Judge William Alsup said the user agreement is unenforceable because it failed to adhere to general contract principles, which require that arbitration can only function if it benefits both sides.
“Because the delegation clause imposes an onerous, unfair burden beyond that of a typical delegation clause, this order finds it substantively unconscionable,” Alsup wrote in a 12-page ruling. Specifically, Alsup found Coinbase's user agreement required only its users to submit to arbitration in disputes — it does not hold the company to the same arbitration requirement.
The ruling means Abraham Bielski can pursue his class action claims against Coinbase in federal court, rather than a private arbitration process.
Bielski claims Coinbase neglected to address his concerns with an in-person follow-up after someone posing as a PayPal representative gained access to his Coinbase account.
Coinbase is an online cryptocurrency exchange, where users can buy various cryptocurrency coins like Bitcoin, Ethereum and a host of others. Cryptocurrency uses cryptography, which is foundational to internet security, to create a string of data that denotes a value.
That value goes up and down according to various market pressures, but the lure of increasing the value of one’s investments has drawn scores of users to currency exchanges like Coinbase.
Coinbase and other similar platforms, like Cash App or Robinhood, allow users to store their acquired cryptocurrency units in digital wallets.
Bielski says he had such a digital wallet when a fraudster gained access to it and transferred nearly $31,000 out of his account.
He then attempted to get a hold of Coinbase representatives to seek help with the theft, but was repeatedly rebuffed and was instead directed to live chats where automated responses delivered boilerplate language repeatedly.
He then wrote several letters to the Coinbase headquarters in San Francisco and was still unable to reach a human customer service representative, according to his complaint.
Bielski says Coinbase only responded to the specific grievances he outlined after the lawsuit was filed, but also continued to follow up with automated responses, according to the complaint.
Coinbase said Bielski has no legal grounds to pursue such claims in federal court and is instead bound by the terms of the user agreement to enter into arbitration. Alsup disagreed.
“This order finds the arbitration agreement as a whole unconscionable and, hence, unenforceable,” he wrote.
Coinbase, a company with a $42 billion market capitalization, was founded in 2012 and is one of the largest global crypto exchanges.
Bielski’s complaint is not the first to center on the company’s customer service issues.
In 2018, Quartz reported customer service complaints against Coinbase had more than doubled in January of that year, according to data provided by the Consumer Financial Protection Bureau.
Many of the complaints centered on money not being available when promised.
Coinbase did not return a request for comment as of press time.
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