Attorney Steve® Crypto Law - Coinbase Lawsuits and their Arbitration Provision [Call 877-276-5084]

Attorney Steve Tip:  Dealing with a Crypto Scam?  Here is some helpful information.

Introduction

Coinbase, one of the largest and most popular cryptocurrency exchanges, is facing legal issues as a result of recent alleged customer losses in crypto transactions. Coinbase is currently facing multiple class action lawsuits from customers who allege that the exchange is responsible for the loss of their funds in crypto transactions.

The lawsuits may allege that Coinbase failed to properly secure customer funds, failed to properly investigate suspicious activity, and failed to properly protect customers from malicious activity. Coinbase has also been accused of failing to properly disclose the risks of investing in cryptocurrency transactions.

As a result, customers have allegedly lost a substantial amount of money due to Coinbase's alleged negligence and lack of proper cyber security. The legal issues Coinbase is facing are complicated and many customers are uncertain of their legal rights and remedies.

In general, customers may be able to pursue a claim against Coinbase for breach of contract, negligence, or other legal theories depending on the facts and circumstances of the case. The class action lawsuits allege that Coinbase is liable for the losses suffered by customers due to the company's failure to adequately protect customers' funds. It is possible that Coinbase could be liable for damages, including the loss of customer funds and other consequential damages.

Coinbase is also facing potential legal issues related to its policies and procedures. The company is currently facing allegations of negligence, breach of fiduciary duty, locked accounts, and other related legal theories. Coinbase's policies and procedures may be alleged to be inadequate to protect customers from malicious activity and other risks associated with investing in cryptocurrency. In addition to the class action lawsuits, and hacker class action lawsuits, Coinbase is also facing regulatory issues.

The company is currently under investigation by the U.S. Securities and Exchange Commission (SEC) for potential violations of securities laws and even insider trading. Coinbase is also facing scrutiny from various state regulators for potential violations of state consumer protection laws. The legal issues Coinbase is facing are significant and could have significant financial and reputational consequences for the company.

It is important for customers to understand their legal rights and remedies in the event of a loss in crypto transactions. Customers should consult with an experienced attorney to better understand their legal rights and remedies in the event of a loss in crypto transactions. In some cases, as this blog addresses, a crypto consumer may be forced to arbitrate the case pursuant to the Coinbase arbitration agreement.

Watch Attorney Steve® discuss how to [try to] break a Coinbase Arbitration Agreement

Coinbase Arbitration Provision

In the case cited below, the Court discussed the Coinbase arbitration agreement:

The 2017 User Agreement included the following arbitration provision:

If you have a dispute with Coinbase, we will attempt to resolve any such disputes through our support team. If we cannot resolve the dispute through our support team, you and we agree that any dispute arising under this Agreement shall be finally settled in binding arbitration, on an individual basis, in accordance with the American Arbitration Association's rules for arbitration of consumer-related disputes (at https://www.adr.org/sites/default/files/Consumer%20Rules.pdf) and you and Coinbase hereby expressly waive trial by jury and right to participate in a class action lawsuit or class-wide arbitration. . . McPherson-Evans Decl.

See Alfia v. Coinbase Glob., Inc., No. 21-cv-08689-HSG, 2022 U.S. Dist. LEXIS 130559, at *4-5 (N.D. Cal. July 22, 2022)

Arbitration agreements are normally enforced by a motion to compel arbitration if a Plaintiff seeks to take the case to court, either state or federal.  There are a few exceptions, for example, where the arbitration agreement is Unconscionable.  There is a case up on appeal with the United States Supreme Court (via writ of certiorari) where two private lawsuits WERE NOT FORCED TO ARBITRATE their disputes, and Coinbase is seeking judicial review of this decision.

The court in the below case discussed this:

The arbitration provision is not unconscionable and is therefore enforceable.

Under California law, an agreement is enforceable unless it is both procedurally and substantively unconscionable. Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280-81 (9th Cir. 2006). Procedural and substantive unconscionability need not be present in equal amounts. Id. The two are evaluated on a "sliding scale," meaning that a stronger showing of procedural unconscionability means that less evidence of substantive unconscionability is needed to establish overall unconscionability, and vice versa. Id.

To determine whether a contract of adhesion is oppressive and therefore procedurally unconscionable, California courts consider several factors, including:

(1) the relative bargaining power and sophistication of the parties,

(2) the complaining parties' access to reasonable market alternatives,

and

(3) the degree to which an offending provision of a contract is "buried in a lengthy . . . agreement." 

Shierkatz Rllp v. Square, Inc., 2015 U.S. Dist. LEXIS 169628, 2015 WL 9258082, *9 (N.D. Cal. December 17, 2015); see also Nagrampa, 469 F.3d at 1281-84. California courts "recognize that showing a contract is one of adhesion does not always establish procedural unconscionability." Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App. 4th 1332, 1348 n.9, 182 Cal. Rptr. 3d 235 (2015); see also Nagrampa, 469 F.3d at 1281.

Considering these factors, the Court finds a minimal degree of procedural unconscionability arising from the adhesive nature of the 2017 User Agreement. While the relative bargaining power between the parties favors Defendant and the 2017 User Agreement was presented on a take-it-or-leave-it basis, nothing in the record suggests that Coinbase was Plaintiff's only option for cryptocurrency services. And while Plaintiff argues that Coinbase never called the arbitration clause to his attention, see Opp. at 21, the arbitration provision in the 2017 User Agreement is clearly labeled "Arbitration; Waiver of Class Action" in bold print. See McPherson-Evans Decl., Ex. 3 § 7.2 (emphasis in original). The terms of the arbitration provision, unlike the majority of the contract, are also in bold font. Id.; see also McPherson-Evans Decl. ¶ 14.

"[A]n arbitration provision is substantively unconscionable if it is 'overly harsh' or generates 'one-sided results.'" Nagrampa, 469 F.3d at 1280-81 (quoting Armendariz v. Foundation Health Psychcare Svcs. Inc., 24 Cal.4th 83, 114, 99 Cal. Rptr. 2d 745, 6 P.3d 669 (2000)); see also Pinnacle Museum Tower Ass'n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 246, 145 Cal. Rptr. 3d 514, 282 P.3d 1217 (2012). However, "[a] contract term is not substantively unconscionable when it merely gives one side a greater benefit; rather, the term must be so one-sided as to shock the conscience." Pinnacle, 55 Cal. 4th at 246 (internal quotation marks omitted).

Plaintiff contends that the arbitration provision is substantively unconscionable because it prohibits class-wide claims and provides relatively greater benefit to Coinbase. See Opp. at 21-22. The Court disagrees. The Supreme Court has affirmed the enforceability of class-action waivers. See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011); see also Carter v. Rent-A-Center, Inc., 718 F.Appx. 502, 504 (9th Cir. 2017) (interpreting "Concepcion as foreclosing any argument that a class action waiver, by itself, is unconscionable under state law or that an arbitration agreement is unconscionable solely because it contains a class action waiver"). And the provision binds both parties to arbitrate designated claims. The Court finds that the arbitration provision is not substantively unconscionable.

Accordingly, the arbitration provision is not unconscionable and is therefore enforceable.

Alfia v. Coinbase Glob., Inc., No. 21-cv-08689-HSG, 2022 U.S. Dist. LEXIS 130559, at *7 (N.D. Cal. July 22, 2022)

Northern District of California Case

Here is a closer look at the Alfia case.

Alfia v. Coinbase Global, Inc.

United States District Court for the Northern District of California

July 22, 2022, Decided; July 22, 2022, Filed

Case No. 21-cv-08689-HSG

Plaintiff alleges in this proposed class action that Defendant failed to properly secure his Coinbase account. See generally Dkt. No. 1 ("Compl."). Plaintiff alleges that an unauthorized purchase of $50,000 in cryptocurrency was made from his Coinbase account and an equivalent amount of money was deducted from his personal banking account without his knowledge or approval. Id. ¶¶ 12-13.

Plaintiff asserts that because of Defendant's conduct, he has suffered significant economic loss, worry, and stress. Id. ¶¶ 26, 30, 35, 37. Plaintiff alleges multiple causes of action, including claims for breach of contract for violating Coinbase's Privacy Policy, negligently securing Plaintiff's private information and accounts, and misrepresenting the security and confidentiality of Plaintiff's information.

Alfia v. Coinbase Glob., Inc., No. 21-cv-08689-HSG, 2022 U.S. Dist. LEXIS 130559, at *1-2 (N.D. Cal. July 22, 2022)

II. LEGAL STANDARD

The Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1 et seq., sets forth a policy favoring arbitration agreements and establishes that a written arbitration agreement is "valid, irrevocable, and enforceable." 9 U.S.C. § 2; Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1621, 200 L. Ed. 2d 889 (2018) (noting federal policy favoring arbitration); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983) (same). The FAA allows that a party "aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that . . . arbitration proceed in the manner provided for in such agreement." 9 U.S.C. § 4.

This federal policy is "simply to ensure the enforceability, according to their terms, of private agreements to arbitrate." Volt Info. Scis., Inc. v. Bd. of Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 476, 109 S. Ct. 1248, 103 L. Ed. 2d 488 (1989). Courts must resolve any "ambiguities as to the scope of the arbitration clause itself . . . in favor of arbitration." Id. When a party moves to compel arbitration, the court must determine (1) "whether a valid arbitration agreement exists" and (2) "whether the agreement [*3]  encompasses the dispute at issue." Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004).

The agreement may also delegate gateway issues to an arbitrator, in which case the court's role is limited to determining whether there is clear and unmistakable evidence that the parties agreed to arbitrate arbitrability. See Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015).

In either instance, "before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists." Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530, 202 L. Ed. 2d 480 (2019) (citing 9 U.S.C. § 2).

A. The parties formed a valid arbitration agreement.

The party seeking to compel arbitration bears the burden of proving the existence of the agreement by a preponderance of the evidence. See Norcia v. Samsung Telecomms. Am., LLC, 845 F.3d 1279, 1283 (9th Cir. 2017). In determining whether an agreement was formed, the Court applies "general state-law principles of contract interpretation," without a presumption in favor of arbitrability.2 See Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir. 2014) (quotation omitted). The Ninth Circuit has recognized that internet-based commerce "has not fundamentally changed the principles of contract." Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171, 1175 (9th Cir. 2014).

One of those principles is that, in order for a contract to be formed, there must be mutual manifestation of assent. Id. Courts generally consider online contracts as one of two kinds:

(1) "clickwrap" agreements where a user is presented with the terms and must click on a box to indicate that they agree before they may continue, which courts generally enforce;

or

(2) "browsewrap" agreements where the website's terms are provided to users via a hyperlink at the bottom of a webpage and a user's assent to the terms is assumed by their continued use of the website, which courts often view with skepticism. See id. at 1175-77. Defendant explains that to create his Coinbase account, Plaintiff had to click a "check box" next to the language:

"I certify that I am 18 years of age or older, and I agree to the User Agreement and Privacy Policy," with both agreements accessible via hyperlink.3 Mot. at 2-3, 4; see Dkt. No. 18-1 Decl. of Carter McPherson-Evans ("McPherson-Evans Decl.") ¶ 9, Ex. 2. Defendant asserts that Plaintiff assented to the hyperlinked User Agreement ("2017 User Agreement") in creating a Coinbase account on December 18, 2017. Mot. at 4.

Plaintiff's assent was similar to a "clickwrap" agreement—he clicked a box stating that he agreed to the User Agreement, which was hyperlinked for easy accessibility. See Mot. at 4; McPherson-Evans Decl. ¶ 9, Ex. 2. He had clear notice of the terms of the 2017 User Agreement and took physical action to manifest his assent. Plaintiff does not contest that he agreed to the 2017 User Agreement at the time he created a Coinbase account, see Opp. at 8, and the Court finds that there was a mutual manifestation of assent to the 2017 User Agreement.5 Therefore, the Court concludes that the parties entered into a binding arbitration agreement.

Alfia v. Coinbase Glob., Inc., No. 21-cv-08689-HSG, 2022 U.S. Dist. LEXIS 130559, at *5 (N.D. Cal. July 22, 2022)

The Court held the arbitration clause was enforceable

Here, the scope of the arbitration provision is broad—it includes any disputes arising under the 2017 User Agreement. McPherson-Evans Decl., Ex. 3 § 7.2. ("[Y]ou and we agree that any dispute arising under this Agreement shall be finally settled in binding arbitration. . ."). As the Ninth Circuit has held, a claim "arises under" an agreement when it "relat[es] to the interpretation and performance of the contract itself." Tracer Research Corp. v. Nat'l Envtl. Servs. Co., 42 F.3d 1292, 1295 (9th Cir. 1994) (citation omitted). The contract here concerns the provision of Coinbase services through a Coinbase account. See generally McPherson-Evans Decl., Ex. 3. Plaintiff's claims relate to Defendant's provision of Coinbase services through his Coinbase account, and the arbitration agreement, therefore, encompasses the dispute.

Plaintiff argues that the arbitration provision does not apply to privacy-related claims because the 2017 User Agreement and the Privacy Policy are separate agreements. Opp. at 8. Plaintiff contends that since the Privacy Policy does not have an arbitration provision of its own, he cannot be forced to arbitrate. Opp. at 10-11.

However, the 2017 User Agreement incorporates the Privacy Policy by reference. Under California Law, "incorporation by reference requires:

(1) the reference to the incorporated writing must be clear and unequivocal,

(2) the reference must be called to the attention of the other party,

and

(3) the terms of the incorporated writing must be known or easily available to the parties." 

American Metal & Iron, Inc. v. American Employers Group, Inc., 2007 U.S. Dist. LEXIS 115521, 2007 WL 972887, *2 (N.D. Cal. March 29, 2007); see also Poublon v. C.H. Robinson Company, 846 F.3d 1251, 1269 (9th Cir. 2017).

In this case, the 2017 User Agreement clearly references the Privacy Policy, and the Privacy Policy was easily accessible to any user signing up for Coinbase's services via a hyperlink on the account creation page. See McPherson-Evans Decl., Ex. 3 at § 8.4 ("This Agreement, the Privacy Policy, E-Sign Consent, and Appendices incorporated by reference herein comprise the entire understanding and agreement between you and Coinbase. . ."). 

Plaintiff notes that the Privacy Policy does not mention the User Agreement, see Opp. at 12-13, but reciprocal incorporation in both documents is not required for there to be incorporation by reference. Plaintiff admits his claims relate to the Privacy Policy, which is part of the "entire agreement" formed by the parties, further reinforcing the conclusion that the arbitration agreement encompasses the dispute at issue.
Alfia v. Coinbase Glob., Inc., No. 21-cv-08689-HSG, 2022 U.S. Dist. LEXIS 130559, at *6-7 (N.D. Cal. July 22, 2022)

If you have a dispute, read their terms, and first file a complaint

It may be wise at this stage to seek crypto counsel to assist you.  When you put things in writing, the other side will usually hold you to them. So, you should conduct a thorough investigation and having a letter represent you (especially if the stakes are high - loss of several hundreds of thousands, or even millions of dollars) makes good business sense.

TWO MORE CASES TO ADD TO THE LIST (compelling arbitration of a crypto dispute):

Donovan vs. Coinbase Global, Inc., 22-cv-02826 (N.D. Ca. Jan. 6, 2023)

Pearl vs. Coinbase Global, Inc. 22-cv-03561 (N.D. Ca. Feb. 3, 2023)

OTHER COINBASE LAWSUITS IN THE NEWS

1.  Coinbase settles with NY regulators for 50 million related to background checks (KYC)

2. Coinbase sued for selling unregistered securities

3. Coinbase sued for patent infringement in relation to crypto

Contact a California Crypto Technology Law Firm

If you are having a legal issue with FTX, Wyre, Coinbase, Binance, or any other crypto company, contact us for a case evaluation.  Losses need to be in excess of $100,000.  Types of issues we may handle include:

• Inadequate security
• Unauthorized "freezing" or locking of accounts
• Unauthorized transactions
• Selling unregistered securities
• Negligence
• Breach of fiduciary duty
• Cyber security flaws
• Other

Due to volume, we cannot respond to all emails but we will do our best to get back to you.  Call us at (877) 276-5084.  Vondran Legal, in conjunction with the Hoda Law Firm from Texas, was one of the first law firms to sue FTX founders and their accounting companies.  You may also fill out our contact form for more information.