Supreme Court hears arguments in Coinbase arbitration case
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The Supreme Court Tuesday kicked off its first case involving crypto, though the issue at hand has nothing to do with cryptocurrencies.
Why it matters: The eventual ruling in the case brought by Coinbase, a crypto exchange, will have much broader implications — a bellwether case that could mark a new era for consumer protection across the business landscape, experts tell Axios.
Catch up fast: The issue at the core is a rule called the Federal Arbitration Act (FAA), which for a century has protected businesses from the expense and risk of going to court to settle customer disputes.
- "Arbitration clauses" are found in all sorts of user contracts, sometimes coupled with another that bars class-action suits.
- They're intended to compel customer disputes to be handled through-closed-doors resolution outside of the court system.
A lower court denied Coinbase's attempts to enforce arbitration against a pair of customer lawsuits, and the U.S. Court of Appeals for the Ninth Circuit denied the company's motions to stay the hearings — or hit pause — while it considers an appeal.
Driving the news: The Supreme Court Tuesday heard arguments related to whether those cases — Coinbase v. Bielski and Suski v. Coinbase — should proceed in court, even as the company's appeal is still pending.
- Quick take: "The majority of the Supreme Court justices appeared skeptical of the automatic stay," Imre Szalai, a law professor at Loyola University in New Orleans, tells Axios.
- With the exception of Justice Brett Kavanaugh, most appeared to take a textualist approach to the rule.
The big picture: "Any decision in the arbitration realm affects the behavior of corporations with respect to arbitration clauses, which ultimately impacts consumers," Jill Gross, a law professor at Pace University tells Axios.
- "The no. 1 killer of class-action lawsuits is the arbitration clause — it's protection for businesses," Szalai said.
The question before the Supreme Court is whether a company can be compelled to go to court if denied arbitration while it still has a valid appeal, Jeffrey Dasteel, an arbitrator and retired UCLA professor on the subject, tells Axios.
- "It’s about how much time and money do [businesses] have to spend in court, when [they] agreed to not be in court in the first place," Gross said.
Zoom in: It's more likely than not that the average American has signed an agreement with an arbitration clause. AT&T and Verizon have one. Apple doesn't, but has piggybacked off of AT&T's with mixed success.
- Fun fact(s): They're also in labor contracts. Famous people use them: Actor Charlie Sheen, President Donald Trump, plus pro-golfer Tiger Woods.
Flashback: When the FAA was drafted in the 1920s, it was aimed at protecting contracts between businesses; there was no such thing as the mass consumer at the time.
- Meanwhile, those arbitration clauses upheld by the FAA started getting picked up by businesses in user agreements. They've since proliferated as the internet became a thing.
What they're saying: "The abuse of arbitration agreements has deprived consumers of choice... the choice of whether they want to have access to justice," Gross says.
- "By necessity, being pro arbitration agreement is an anti-consumer position."
The other side: "Consumer arbitration is quicker and [features] tight proceedings, less discovery, less motion practice," Dasteel says, adding that companies tend to foot the bill.
What we're watching: Since the 1980s and 1990s, the court has expressed a pro-arbitration agreement stance, according to law professors who spoke with Axios.
- Pro-arbitration agreement has meant pro-business.
The question now is whether justices will continue to present that position, or if they will use the Coinbase case to express a more pro-consumer stance.
