Coinbase Wins Key Arbitration Ruling in Class Action Dispute

By ruling in favor of Coinbase in a $5 million class action, the Ninth Circuit clarified a recent Supreme Court precedent finding that when a party requests a stay in a dispute subject to arbitration, the district court has no discretion to deny it.

The Ninth Circuit vacated a district court's dismissal and remanded for issuance of a stay, pending arbitration, supporting Coinbase’s stance.
The case clarifies the Supreme Court’s precedent in Forrest v. Spizzirri, precedent finding that when a party requests a stay in a dispute subject to arbitration, the district court has no discretion to deny it.
Plaintiffs’ attorney disagrees, citing ongoing concerns over fairness in arbitration.

The U.S. Court of Appeals for the Ninth Circuit ruled in favor of Coinbase Global Inc. in a case involving a class action in excess of $5 million, brought by plaintiffs Dallas Woody and Peter Hrehorovich, according to a Law.com report. The plaintiffs had appealed to the U.S. District Court for the Northern District of California after it ruled to compel arbitration.

Why This Matters: By ruling in favor of Coinbase, the court clarified a recent U.S. Supreme Court precedent finding that when a party requests a stay in a dispute subject to arbitration, the district court has no discretion to deny it.

"In the time since the plaintiff filed his complaint, nearly two years have passed," a Coinbase spokesperson said in a statement. "During this time, he could have gone to arbitration and obtained a decision on the merits. Instead, he wasted these years litigating in court whether the case should be in arbitration in the first place. We look forward to resolving this matter swiftly in arbitration."
Plaintiffs’ attorney Frederick Rispoli disagreed with the ruling. Rispoli said that this application of the Supreme Court decision in Forrest v. Spizzirri would require that if a party is fighting arbitration, the party would have to wait until the arbitration is complete before filing an appeal granting arbitration.

What the Case Is About

The dispute is related to the timing of an "airdrop" of new cryptocurrencies Flare and Songbird. An airdrop occurs when a digital asset is deposited with people who have digital wallets, allowing them to build a larger network of users more quickly.
The plaintiffs claimed that Coinbase refused to distribute the cryptocurrencies and, as a result, unjustly converted their property and injured a potential class of crypto investors in excess of $5 million.
The plaintiffs' case hit a roadblock when the district court dismissed the action, leading to the appeal.

What the Ninth Circuit Ruling Says

In its ruling, the Ninth Circuit court wrote that Federal Arbitration Act § 3 provides that, when a district court finds an issue "referable to arbitration," the court "shall on application of one of the parties stay the trial of the action" pending arbitration.

However, the Supreme Court clarified that § 3 is mandatory: "When a party requests a stay in a dispute subject to arbitration, the district court has no discretion to deny it,"
As a result, the district court, relying on a now-overruled precedent in Spizzirri, erred in denying Coinbase's request for a stay under § 3.
The Ninth Circuit vacated the district court's dismissal and remanded for issuance of a stay, pending arbitration. The court thus ruled in favor of Coinbase, even though the crypto exchange did not file a cross-appeal to the district court's denial of its request for a stay pending arbitration.

If Coinbase prevails at arbitration and the district court does not vacate the resulting award, the plaintiffs could appeal the arbitration ruling, the Ninth Circuit court wrote.