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This case will be significant for Coinbase and other industry players over how the courts should handle scuffles in the case of arbitration.
On Tuesday, March 21, crypto exchange Coinbase Global Inc (NASDAQ: COIN) argued at the US Supreme court that its current disputes on forcing customers into arbitration should actually freeze the courts as the arguments play out. This development breaks legal ground for digital assets into the industry’s highest court.
The first crypto matter to come to the highest court in the US isn’t directly about digital assets. But it could still be significant for Coinbase and other industry players when they clash with clients. This case is basically a dispute over how the courts should handle scuffles in the case of arbitration.
Arbitration is basically an out-of-court settlement or dispute resolution, however, the odds are often stacked against the customers. During Tuesday’s hearing, Coinbase argued that whenever a court rules that a customer should settle the case in the courtroom instead of arbitration as outlined in the user agreement, a company appeal should stop the case from progressing further in the courts until the appeal is decided.
Neal Katyal, a lawyer representing Coinbase said that Congress has done something very unusual by allowing immediate appeal whenever a court denies a forced arbitration. He also said that there’s a “background rule” wherein the law doesn’t allow for courts to keep going if it’s used.
However, if the customers choose to move into the phase of exchanging information and evidence, the company might be “coerced into a massive settlement” as some embarrassing information coming to the light might negate the purpose of the arbitration. “That toothpaste can’t later be put back into the tube,” he said.
Coinbase’s Lax Protection
Tuesday’s hearing revolved around Coinbase customer Abraham Bielski who had previously argued that a scammer stole $31,000 from his account amid lax protections by the exchange. A court said that Bielski can go ahead and pursue that complaint in the court, to which Coinbase appealed.
Whenever the matter continued to move in the court, Coinbase argued that its appeal should have stopped. But Hassan Zavareei, the lawyer representing Bielski said:
“The entire cryptocurrency market is collapsing under our feet”.
He further argued that any purposeful delays by the company could rob a client’s chance of going after the business in case the business fails during the waiting period. Also, a plaintiff could “wonder whether Coinbase is going to be around”.
During yesterday’s hearing, Chief Justice John Roberts said that the appeal power gives “huge benefit” to companies that don’t have to wait until the case is over. “This is what they gave you,” he said. “Why isn’t that enough?”
Other justices also posed strong questions to Coinbase’s lawyer. Justice Elena Kagan said, “This district court is not stepping on the appeals court,” adding that “the two can go their merry ways.”