Nguyen v. OKCOIN USA INC.

Background

Michael Nguyen and Nader George filed a proposed class action against OKCoin USA, Inc. They alleged that OKCoin misrepresented the stability and financial security of TerraUSD, a cryptocurrency intended to maintain a one-to-one value with the U.S. dollar. After TerraUSD lost 90% of its value over several days in May 2022, the plaintiffs asserted claims for negligence, negligent misrepresentation, and violations of California’s Consumer Legal Remedies Act and Unfair Competition Law.

Both plaintiffs were OKCoin customers who opened accounts while OKCoin’s September 2021 Terms of Service were in effect. The terms required arbitration through JAMS under its Streamlined Arbitration Rules. They also provided that, if JAMS arbitration was unavailable or impossible, arbitration would be conducted through the American Arbitration Association under its then-current rules.

Applicable Terms

The plaintiffs argued that OKCoin’s July 2022 Terms of Service applied because they continued using OKCoin’s website after the terms were changed. OKCoin argued that the September 2021 terms still applied because it had not notified existing users about the July terms.

The court relied on Ninth Circuit precedent holding that a website user must receive actual, inquiry, or constructive notice of changed contract terms before those changes become binding under a change-of-terms provision. The record showed that OKCoin updated the terms on its website but did not notify existing users. The court therefore held that the September 2021 Terms of Service controlled.

JAMS and AAA Provisions

The court treated the arbitration terms as containing two provisions assigning questions about arbitrability—the legal question whether a dispute must be arbitrated—to the arbitration provider. The first assigned those questions to JAMS; the second assigned them to the AAA if JAMS arbitration was unavailable or impossible.

The court found the JAMS assignment unenforceable. JAMS’s consumer-arbitration policy required, among other things, that consumers not be required to pay more than a specified fee, that parties retain access to small-claims court, and that consumers have a right to an in-person hearing in their hometown area. The September 2021 terms required all covered disputes to be arbitrated, required the parties to split JAMS fees and expenses equally, and required arbitration in San Francisco unless OKCoin agreed to another location. Because the terms did not meet JAMS’s minimum standards, the court concluded that JAMS arbitration was unavailable and that the JAMS assignment was effectively void.

The court found the AAA assignment valid. It rejected the plaintiffs’ argument that the terms were unclear because the AAA has many sets of rules, concluding that a reasonable consumer would understand the AAA Consumer Arbitration Rules to apply. The court also concluded that AAA arbitration did not appear impossible merely because the AAA could decline to administer an arbitration containing a material violation of its consumer-protection protocol. The court found that the plaintiffs had not shown that the AAA assignment itself was substantively unconscionable, meaning unfair in its actual terms, even though the overall agreement might be procedurally unconscionable because it was presented as a take-it-or-leave-it contract.

Disposition

The court GRANTS OKCoin’s motion to compel arbitration and orders that the arbitration be submitted to the AAA. The court states that the AAA will determine whether the arbitration agreement is enforceable. The court also stays the proceedings in the case while arbitration is pending. The parties must provide a status report within 30 days after arbitration is completed or the AAA declines to administer it, or within six months of the order, whichever occurs sooner.