In its upcoming term, the Supreme Court will hear a case that will affect the power of the arbitration clauses in customer agreements and, consequently, the cost of litigation for issuers.
The Case
In Coinbase, Inc. v. Bielski, Docket No. 22-105, cryptocurrency company, Coinbase, sought to compel arbitration in two separate cases (Coinbase v. Bielski and Coinbase v. Suski). The District Court of California denied these motions. Coinbase appealed; however, the District Court refused to stay the action and required the parties to proceed with litigation (staying an action means that the litigation stops while the appeal proceeds). Coinbase claims that the District Court is incorrect and litigation should not proceed while the appeal regarding arbitration is pending.
Background
Currently, the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits have held that their district courts must stay proceedings pending the appeal. Conversely, the Second, Fifth, and Ninth Circuits (where the Coinbase case is pending) have ruled that their courts can proceed with litigation during a pending arbitration appeal. The Supreme Court is now poised to decide the issue.
Analysis
This case could have wide-reaching implications. According to Manny Newburger, Founding Shareholder and Vice President of Barron and Newburger, P.C.:
“In light of the arbitration provisions contained in many loan and credit card agreements, this case could have a significant impact on the financial sector. If the court sides with the Second, Fifth, and Ninth circuits, class actions will proceed forward at full steam even as defendants in those cases appeal denials of their motions to compel arbitration. In “rocket docket” jurisdictions, this means that a defendant might find its case concluded at the district court before appeal of the arbitration ruling is concluded. In all jurisdictions, denial of a stay pending appeal will have a significant impact on litigation budgets and will possibly deny defendants the benefit of their arbitration agreements.”
With many creditors including arbitration clauses in their credit agreements, this remains a case to watch in the Supreme Court’s current term. For more information on the Federal rule at issue click here, and to stay up to date on the case, the docket can be found here.
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