Coinbase v. Kramer

Case Summary: ABA filed a coalition amicus brief supporting Coinbase’s certiorari petition asking the U.S. Supreme Court to clarify the scope of Federal Arbitration Act preemption when California plaintiffs seek public injunctive relief under the “McGill rule.”

In a 2017 decision, McGill v. Citibank, N.A., the California Supreme Court held on public policy grounds that claims for “public injunctive relief”—relief that has “the primary purpose and effect of prohibiting unlawful acts that threaten future injury to the general public”—cannot be waived by parties to private arbitration agreements and that the FAA does not preempt that rule.

Coinbase operates a cryptocurrency trading platform that requires users to accept a user agreement before creating an account. This agreement includes an arbitration clause that covers all disputes between users and Coinbase, along with a waiver of class and non-individualized relief, ensuring that only individual claims can be arbitrated.

In 2022, Plaintiffs accepted Coinbase’s user agreement and later sued the company after third-party thieves allegedly stole cryptocurrency from their accounts. Plaintiffs alleged that Coinbase falsely marketed its platform as secure, violating California law. Coinbase moved to compel arbitration, but the San Francisco Superior Court denied the motion, ruling that Plaintiffs pursued public injunctive relief, which is not subject to arbitration. The California Court of Appeal affirmed, and when the California Supreme Court denied Coinbase’s request for review, Coinbase petitioned the U.S. Supreme Court.

ABA filed an amicus brief supporting Coinbase and urged the Court to grant review. ABA argued that California state courts applied the McGill rule too broadly, stripping consumers, businesses, and the public of the benefits of individual arbitration. Alongside this, the California state court system will become even more overburdened and underfunded if disputes that should be resolved in arbitration are instead referred to court due to an overly expansive interpretation of the McGill rule. By undermining arbitration, California courts would ultimately increase consumer costs and overload the already strained judicial system.

ABA also argued a Supreme Court ruling that the FAA preempts the McGill rule will not deprive consumers of their individual claims in arbitration, including claims for equitable relief. ABA contended that arbitration does not deprive parties of substantive claims, but merely changes the forum for resolving those claims. ABA explained the parties’ substantive rights will merely be resolved in arbitration instead of in court, and their claims will be resolved in a faster, cheaper, and more convenient manner.