Bielski v. Coinbase Global, Inc.

Background

Abraham Bielski created a Coinbase account in 2021. According to the opinion, a scammer posing as a PayPal representative obtained remote access to the account and transferred the equivalent of $31,039.06 from Bielski’s digital wallet. Bielski alleged that Coinbase did not effectively respond to his efforts to obtain help.

Bielski brought claims against Coinbase for alleged violations of the Electronic Funds Transfer Act and Regulation E and sought to represent a class of similarly situated individuals. Coinbase moved to compel arbitration based on its user agreement. Bielski did not dispute that he accepted the applicable user agreement or that the agreement covered the dispute. Instead, he argued that the arbitration terms were unconscionable, meaning unfairly one-sided or imposed through an unfair contracting process.

Analysis

The Federal Arbitration Act generally makes arbitration agreements enforceable, subject to ordinary contract-law defenses. The court first examined the agreement’s delegation clause, which purported to assign questions about the enforceability, scope, and validity of the arbitration agreement to an arbitrator.

Applying California law, the court found the delegation clause substantively unconscionable because it lacked mutuality. The agreement required a Coinbase user to contact customer support and then complete a formal complaint process before filing for arbitration. If the user failed to follow those steps, Coinbase could seek dismissal of the arbitration or small-claims filing until the steps were completed. The court found that these procedures contemplated complaints by users, not complaints by Coinbase, and imposed no corresponding obligation on Coinbase to arbitrate its disputes with users.

The court also found that the delegation clause incorporated the agreement’s burdensome pre-arbitration procedures. Because those procedures imposed an unfair burden beyond the ordinary effects of delegating arbitrability questions, the delegation clause was substantively unconscionable.

The court separately found procedural unconscionability. Coinbase drafted and presented the user agreement on a take-it-or-leave-it basis, leaving Bielski without an opportunity to negotiate or meaningful choice. The court also concluded that the agreement’s broad restriction on access to arbitration or small-claims court until the user completed the complaint process would surprise an average consumer. Coinbase did not dispute that the agreement involved at least some procedural unconscionability.

The court then held that the broader arbitration agreement was also unconscionable and unenforceable. It imposed the unfair pre-arbitration process on users and sent users’ complaints, but not Coinbase’s complaints, to binding arbitration.

Severance and Disposition

The court considered whether it could remove the unfair language and enforce the rest of the agreement. It declined to do so because the one-sidedness permeated the delegation clause and arbitration agreement. The pre-arbitration requirements appeared in multiple provisions, and removing one phrase would require rewriting the agreement rather than interpreting its existing terms.

The court concluded: “Coinbase’s motion to compel arbitration is DENIED.” The opinion did not decide the underlying Electronic Funds Transfer Act or Regulation E claims.