WASHINGTON (CN) — A lawyer for Coinbase faced skepticism Tuesday from the liberal wing of the Supreme Court as he claimed that the cryptocurrency exchange company should not have to litigate two class actions while it goes through an appeal that could send the matter to arbitration.
The case is the first ever related to crypto go before the high court, whose liberal wing seemed particularly opposed to Coinbase's argument.
“I can understand why you'd prefer everything to stop while the appellate court is dealing with the arbitrability issue,” Justice Sonia Sotomayor told the lawyer for Coinbase. “But the district court is not any longer dealing with the arbitrability issue. So the two can go their merry way, coincident with each other.”
Arguing for the San Francisco-based crypto exchange, Neal Katyal said that Congress crafted the Federal Arbitration Act to allow immediate appeals when district courts deny motions to compel arbitration.
“When a party appeals the denial of a motion to compel arbitration, it stays litigation,” the Hogan Lovells attorney said.
Drawing an analogy to how “toothpaste can't be put back in the tube," Katyal continued to argue that a stay at the district court level would effectively prevent discovery that might interfere with future arbitration proceedings.
“When Congress wants to prevent a mandatory stay, they say so expressly with anti-stay laws,” Katyal said.
It is the position of Coinbase that the two disputes, both filed by disgruntled users, must be arbitrated under the terms of its user agreement.
Hassan Zavareei argued Coinbase on Tuesday for the user turned legal opponent Abraham Bielski.
“Congress would not without clearly expressing such a purpose, deprive the courts of their customary power to order stays under review,” Zavareei told the court.
Justice Brett Kavanaugh expressed concerns with Zavareei’s argument that both the appeals court and district court should be able to proceed in tandem.
“The other side's concern, I believe, is that they think they correctly bargained for arbitration, and they have a right that Congress has given them to have the appellate courts determine that," Kavanaugh explained. "And that they're not going to be able to afford themselves that congressionally granted right because, if the district court discovery goes forward in a class action context, that is going to coerce massive settlements. And they don't want to be coerced into massive settlements without having the opportunity to take advantage of the right that Congress has given them to have an appeals court decide whether arbitration is the appropriate forum."
Kavanaugh urged Zavareei for a response.
“You've already got a district court that has ruled that there is no valid arbitration,” the lawyer replied.
“It could be wrong,” Kavanaugh retorted.
Justice Neil Gorsuch appeared to sympathize with Coinbase, saying there’s a “one-court-at-a-time rule that is pretty ancient.”
Coinbase is one of the world's largest crypto exchanges, founded in 2012 and valued at nearly $86 billion in 2021 when it debuted on Wall Street. Users can navigate the exchange to buy various cryptocurrency coins like Bitcoin or Ethereum. 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.
Previous decisions allowed the plaintiffs in the now-consolidated federal suit to proceed in California.
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.
