Arbitration is a long-standing business practice that has become increasingly popular in the world of cryptocurrency. As Coinbase faces a potential adverse judgment in two cases currently before the Supreme Court, the implications are broad. Might arbitration in crypto face different outcomes than in other industries?
Arbitration presents a unique opportunity for both businesses and customers. It can protect exchanges from harmful government regulation, or address disputes between consumers and companies. Most importantly, arbitration clauses provide opportunities for dispute resolution not always available in traditional legal processes.
Coinbase Inc. v. Bielski and Suski v. Coinbase are the first wholly crypto-focused matters to come before the Supreme Court. So what happens here might determine the fate of other crypto startups down the line.
The Benefits of Arbitration
Arbitration is an informal process that seeks to resolve disputes in a timely and efficient manner. It typically involves one or more arbitrators who are knowledgeable about the subject matter of the dispute. They allow both parties to present their cases before making a decision.
This can be beneficial for businesses because it may result in quicker resolution than traditional court proceedings. It also allows companies to craft their own customized arbitration clauses, which can include provisions that favor them in the event of a dispute.
SCOTUS Ignores the Arbitration Clause
Coinbase has two lawsuits in hand. Bielski involves a Coinbase user who lost $31,000 to a scammer pretending to be a PayPal representative. Suski concerns a $1.2 million Dogecoin sweepstakes that allegedly confused and misled customers. Coinbase includes an arbitration clause in their user agreement. They have appealed both cases, asking to move to arbitration, as per their agreements. However, the court cases appear to be moving forward, despite Coinbase’s motions to appeal.
It is quite standard to stay, or halt, a lawsuit while the court weighs moving to arbitration. But in the case of startups, some plaintiffs argue that staying a lawsuit could take too long. If the startup goes out of business, then the plaintiff might not get paid, even if they win.
With Coinbase’s case before the Supreme Court, it is unclear whether courts will defer to these arbitration clauses at all. The court has previously held that such agreements are not necessarily binding. But given the tension between the U.S. government and crypto, it is hard to say whether the court is acting in fairness.
Arbitration Clauses in Employee Contracts
The pending Supreme Court ruling has implications for employees at crypto companies who have arbitration clauses included in their employment contracts. Although such agreements may provide certain protections, they are not necessarily binding against regulatory bodies. This means that the courts could still rule to allow a lawsuit to go forward even if an employee’s contract includes an arbitration clause.
Ultimately, it is up to the courts to decide whether such agreements should be enforced. This means that it is still possible for regulators to intervene and bring legal action against crypto exchanges even if they have a valid arbitration clause in place.
While arbitration may be useful for some crypto companies, it is not likely to provide complete protection against future lawsuits.
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