By Andrew Chung and John Kruzel
WASHINGTON (Reuters) - The U.S. Supreme Court on Friday backed cryptocurrency exchange Coinbase (NASDAQ:COIN) Global Inc's bid to halt customer lawsuits while it pursues appeals aimed at moving the disputes out of courts and into private arbitration, which businesses often prefer over litigation.
The justices, in a 5-4 decision, overturned a lower court's ruling involving a user who sued after a scammer stole money from his account. The lower court had let a proposed class action lawsuit proceed while Coinbase pressed its appeal contending that the claims belong in arbitration. The justices dismissed a second case that Coinbase had asked it to review.
Companies generally prefer to arbitrate claims because the process is cheaper and faster than litigation in court, which can be harder to fight and carries a greater risk of hefty damages awards.
Coinbase's exchange allows users to transact in digital currencies such as bitcoin and ether. The company asserts that its user agreement requires disputes to be resolved through arbitration and that under a law called the Federal Arbitration Act, which governs dispute resolution proceedings through arbitration, action in trial courts must come to a halt when a denial of a request to compel arbitration is appealed.
Conservative Justice Brett Kavanaugh, joined by four fellow conservatives, wrote the ruling.
Kavanaugh cautioned about the risk of allowing trial courts to proceed while the arbitration question plays out on appeal, saying such a scenario could cause the benefits of arbitration such as efficiency and cost savings to be "irretrievably lost - even if the court of appeals later concluded that the case actually had belonged in arbitration all along."
The court's three liberal justices and conservative Justice Clarence Thomas dissented.
Liberal Justice Ketanji Brown Jackson in the dissenting opinion said the ruling invented a new rule "perpetually favoring" the party seeking arbitration.
"Now, any defendant that devises a non-frivolous argument for arbitration can not only appeal, but also press pause on the case - leaving plaintiffs to suffer harm, lose evidence and bleed dry their patience and funding in the meantime," Jackson wrote.
Katherine Minarik, Coinbase's vice president for litigation, welcomed the ruling.
Minarik said the decision "recognizes that companies like Coinbase, as well as our customers, bear significant burdens when cases that belong in an arbitration process instead proceed in lengthy and expensive court proceedings. It makes sense that lower court litigation should be paused while an appellate court decides whether a case belongs in court at all."
One of the cases involved a California lawsuit by customer Abraham Bielski, who alleged that a scammer stole more than $30,000 from his Coinbase account in 2021. The suit accused the company of violating the Electronic Funds Transfer Act by not investigating or recrediting Bielski's account.
In the other suit that the court dismissed on Friday, former users accused the company of violating California's false advertising law by duping them into paying to participate in a 2021 sweepstakes that offered prizes in dogecoin, a type of cryptocurrency.
In both cases, federal judges had refused to force the claims into arbitration, as the company argued the user agreements required. While Coinbase immediately appealed those decisions, the San Francisco-based 9th U.S. Circuit Court of Appeals in 2022 refused the company's requests to put further litigation on hold pending those appeals.