Coinbase argues for an arbitration case in the US Supreme Court as Crypto debuts

Coinbase ( COIN ) argued at the US Supreme Court on Tuesday that its disputes over forcing customers into arbitration should freeze the courts while the arguments play out — a moment that breaks legal ground for crypto in the industry’s first appearance at the Supreme Court.

The case itself has little direct effect on the digital asset business, though it could be significant for Coinbase and other crypto companies as they clash with customers. The crypto exchange essentially argued to the judges that when a court decides that a customer deserves to settle a dispute in a courtroom instead of the arbitration outlined in their user agreement, a company appeal should stop that case from going through the courts until the appeal is decided.

“Congress did something very unusual” by giving this power to immediately appeal when a court refuses to compel arbitration, said Neal Katyal, an attorney representing Coinbase, who argued that there is a “background rule” that states the law does not allow courts to continue if used. If customers do enter the information and evidence sharing phase, a company can be “forced into a massive settlement” as embarrassing information emerges – sometimes in the press – that negates the purpose of arbitration.

“That toothpaste cannot later be put back in the tube,” he said.

In Tuesday’s case, Coinbase Inc. v. Bielski, customer Abraham Bielski had originally accused Coinbase of lax protections when a fraudster stole $31,000 from his account. A court found that he could go ahead and pursue the complaint in the courts, which Coinbase appealed. When the case continued in court, the company argued that the appeal should have stopped it.

“The entire cryptocurrency market is collapsing under our feet,” said Hassan Zavareei, who represented Bielski, arguing that targeted and automatic delays by a company could rob a person of a chance to go after the company if the business fails during the wait. A plaintiff may “wonder if Coinbase is going to exist” while awaiting the appeal.

As for Coinbase’s argument that Congress meant the automatic “stay” — a legal delay — he said it’s just not there.

“Congress says what it means and means what it says,” Zavareei said.

Supreme Court Justice John Roberts said this appeal power gave businesses the “huge advantage” of not having to wait until a case is over.

“This is what they gave you,” he said. “Why isn’t that enough?”

Most of the judges peppered Coinbase’s lawyer with tough questions, often interrupting his answers. Justice Elena Kagan was particularly critical.

In the Coinbase case, she said, “This district court is not stepping on the appellate court,” adding that “the two can go their merry ways.”

Justice Brett Kavanaugh, on the other hand, at one point praised the Coinbase case for making a “strong point” about related statutes that demonstrate congressional intent for it.