Wednesday, September 13, 2023
Coinbase Users' Complaints About Hacked Accounts Sent to Arbitration
Manish Aggarwal and Mostafa el Bermawy owned Coinbase accounts. Both claim that hackers broke into Coinbase and drained their accounts of cryptocurrency. They may also have drained Coinbase's logo (right) of any spark of interest and originality, but that is not part of the case.
The plaintiffs brought an action on behalf of themselves and other Coinbase users who registered since April 1, 2021 and either lost access to their accounts or lost funds or cryptocurrency from those accounts. They alleged violations of the Electronic Fund Transfers Act and related regulations and of various California statues, but also breach of contract and unjust enrichment.
Coinbase moved to dismiss and to compel arbitration. In Aggarwal v. Coinbase, Inc., the District Court for the Northern District of California granted Coinbase's motion. The case provides a nifty overview of how modern contracts of adhesion work and or how to design a website so that the adhesive seals tightly.
Plaintiffs contended that their contracts with Coinbase are illusory because Coinbase reserves the right to amend the contract at any time. The court quickly dispenses with this argument, noting California law recognizing that the implied duty of good faith and fair dealing saves such contracts from being illusory. Ah, responded plaintiffs, but what if the amendments render nugatory claims that have already accrued or which the corporation was aware of at the time the amendments went into effect? The rule is that if a provision for unilateral amendment is silent as to pre-existing claims, it has no effect on those claims. Such is the case here, and so Coinbase's unilateral amendment agreement, read in light of the duty of good faith and fair dealing, is not illusory.
Plaintiffs next attacked the extent to which the Arbitration Agreement that they signed delegated threshold questions of arbitrability to the arbiter. The delegation clause at issue in this case reads as follows:
The arbitrator shall have exclusive authority to resolve any Dispute, including, without limitation, disputes arising out of or related to the interpretation or application of the Arbitration Agreement, including the enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement[.]
Very similar language has been construed by the Ninth Circuit and has been held to delegate all threshold issues of arbitrability to the arbiter. The court thus found that the parties had clearly and unmistakably delegated issues of arbitrability to the arbiter.
Doing so was not unconscionable. The court noted that there were some elements of procedural unsconscionability in the delegation, as there are in most contracts of adhesion, but those elements were minimal. However, plaintiffs' allegations of the delegation clause's substantive unconscionability were the same as their allegations of the substantive unconscionability of the arbitration clause as a whole. In such situations, under SCOTUS precedent and precedent from the Ninth Circuit, the issue must be assigned to the arbiter. Other courts have reviewed Coinbase's arbitration agreement and delegation clause and have not found them to be unconscionable.
The case is stayed pending arbitration.
https://lawprofessors.typepad.com/contractsprof_blog/2023/09/coinbase-users-complaints-about-hacked-accounts-sent-to-arbitration.html