Coinbase’s Move Towards Arbitration in a Cryptocurrency Fraud Lawsuit Goes Sour

Coinbase Inc., a cryptocurrency exchange firm, has failed in its attempt to compel arbitration in a dispute over cryptocurrency worth more than $31,000, that was stolen from Abraham Bielski.

Why Coinbase is in a Bubble

Coinbase runs a website where clients may buy and sell digital currencies like bitcoin. One of the organization’s services is a “Conversion Service,” which allows consumers to exchange their cryptocurrencies for cash. The financial entity purchases bitcoin from its customers at a fee determined by a “Conversion Rate” disclosed on its website. The plaintiff agreed to the company’s user agreement, which included an arbitration clause, to open his Coinbase accounts.

A con artist posing as a PayPal representative attacked Abraham Bielski, a Coinbase user. Remote access to Bielski’s Coinbase account was given, and the perpetrator transferred assets worth more than $31,000 out of Bielski’s digital wallet. He alleges that Coinbase’s customer assistance was unresponsive and ineffectual following the crypto fraud. He said that their response was “poor and inefficient”, and they were negligent regarding the safety of users’ funds.

Bielski sued Coinbase for allegedly breaking the Electronic Funds Transfer Act and Regulation E. He wants the case to be certified as a class-action lawsuit.

U.S. Court Rejects Coinbase’s Move

The United States District Court denied Coinbase’s attempt to impose Arbitration of Bielski’s charges for the Northern District of California on April 8th.

The party seeking to enforce Arbitration must establish both that the petitioner is relying on a contract to establish its claims and that the arbitration clause in that contract addresses the dispute under the law.

Bielski signed up for the delegation clause when he registered for the account, claiming that the arbitration clause’s applicability, scope, and validity are questions for the arbitrator to consider.

According to the court, Coinbase’s arbitration clause describes only those claims that have initially gone through the pre-arbitration complaint procedure.” “The arbitration terms impose no obligation on Coinbase to resolve its disputes with users to mandatory Arbitration because only Coinbase clients can make a complaint through the pre-arbitration complaint procedure.

The court stated that the user agreement declares a burdensome and unfair pre-arbitration claims process on clients and sends their grievances to binding Arbitration, but not Coinbase’s objections. “The delegation clause plainly incorporates the lack of mutuality in Coinbase’s complaint process,” the court said, adding that it “imposes an unreasonable, unjust burden beyond that of a conventional delegation clause.”

The U.S. District Court upheld the dismissal of the defendant’s attempt to compel Arbitration because Arbitration could not be forced by law.

Is this a Win for the Plaintiff?

While the court’s decision to deny the order to mandate Arbitration is a clear victory for the plaintiff, he still has a long way to win the case on the merits. Bielski must now establish that Coinbase had a legal obligation to combat the underlying fraudulent activity of one of its clients that caused loss to a third party under the legislation.