Cordero v. Coinbase, Inc.

Background

Ryan Cordero, Patrick B. Goodwin, Henry Hobson III, and Christopher Johnson became Coinbase users between 2017 and 2021. Each created an account and accepted Coinbase’s then-current user agreement. Coinbase updated the agreement in 2022 and notified users by email. When users visited the site, Coinbase directed them to review and accept the updated terms. Users could instead close their accounts and move their funds off the platform. Each plaintiff accepted the updated terms in February 2022.

The 2022 user agreement required the parties to resolve disputes arising from their use of Coinbase’s services, website, products, or user agreements through binding arbitration rather than in court. It also contained a class waiver stating that claims could be brought only individually, not on a class, representative, collective, or mass-action basis. A separate batching provision allowed 100 or more substantially similar individual arbitration requests filed within a 30-day period to be handled in batches, with one arbitrator, procedural schedule, hearing if any, and final award for each batch. The agreement stated that this procedure did not authorize class, collective, or mass arbitration.

The agreement gave an arbitrator exclusive authority to decide most questions about the arbitration agreement, including its interpretation, enforceability, scope, and validity. The validity of the class waiver was expressly reserved for a court. The plaintiffs sued Coinbase, alleging that it charged consumers hidden fees during cryptocurrency transactions and violated California and New York consumer-protection laws. Coinbase moved to compel arbitration.

Legal standard

The Federal Arbitration Act generally requires courts to enforce valid arbitration agreements according to their terms, subject to generally applicable contract defenses such as fraud, duress, or unconscionability. Unconscionability is a contract doctrine used to invalidate terms that are unfairly imposed or overly one-sided. A court ordinarily decides threshold questions about whether a dispute must be arbitrated, but the parties may clearly and unmistakably agree to have an arbitrator decide those questions.

Class-waiver challenge

The plaintiffs did not dispute that they entered into an arbitration agreement with Coinbase. They argued, however, that the class waiver was unconscionable for three main reasons.

First, they relied on California’s Discover Bank rule, which treated certain class waivers in consumer contracts as unconscionable. The court concluded that the Federal Arbitration Act preempts that rule when applied to arbitration agreements. The court read the Ninth Circuit’s decision in Heckman v. Live Nation Entertainment, Inc. narrowly. In the court’s view, Heckman concerned representative arbitration, in which one person proceeds on behalf of others and decisions may bind absent claimants. It did not invalidate protections for consolidated arbitration in which each claimant proceeds individually.

The court concluded that Coinbase’s batching procedure involved consolidated, not class-wide or representative, arbitration. It did not include bellwether trials binding absent plaintiffs, strict limits on discovery or briefing, or one-sided limits on appeals of injunctive-relief decisions. The court therefore rejected the plaintiffs’ argument that the Discover Bank rule applied to Coinbase’s agreement.

Second, the plaintiffs argued that the class waiver prevented them from effectively pursuing their statutory claims because the cost of arbitration could exceed the value of their claims. The court found that they had not sufficiently shown that arbitration would be prohibitively expensive. Their argument about a $225 filing fee was unsupported by evidence that their claims were worth less than that amount, and at least one claim sought the greater of actual damages or $500, in addition to possible statutory penalties.

Third, the plaintiffs challenged the waiver under traditional California unconscionability principles. That analysis requires both procedural unconscionability—unfairness in how the contract was presented—and substantive unconscionability—terms that are overly harsh or one-sided. The court acknowledged that the user agreement was a take-it-or-leave-it contract, but found no additional procedural unfairness. The arbitration provisions and class waiver were clearly labeled and displayed in bold, all-capital letters. The plaintiffs also had the option to close their accounts and transfer their cryptocurrency elsewhere, and they did not show that Coinbase had actually used its modification or retroactivity provisions to change the class waiver in an oppressive way.

The court also rejected the plaintiffs’ substantive-unconscionability arguments. The plaintiffs had not identified an unreasonable provision that increased arbitration costs. Their argument about public injunctive relief did not apply because they disavowed any intent to seek that type of relief. Their challenges to the attorney-fee provision and a limitation-of-liability provision concerned the arbitration agreement as a whole, rather than the class waiver specifically, and therefore were questions for the arbitrator under the delegation provision. The court concluded that the plaintiffs had not shown that the class waiver was procedurally or substantively unconscionable.

Delegation and disposition

The court held that the agreement contained clear and unmistakable evidence that the parties intended an arbitrator to decide the remaining questions about arbitrability. The court therefore directed those remaining disputes to arbitration.

The court granted Coinbase’s motion to compel arbitration and stayed the action. The order did not decide the merits of the plaintiffs’ allegations about hidden cryptocurrency transaction fees.