On June 23, 2023, the US Supreme Court delivered a landmark decision supporting a company’s right to enforce a mandatory arbitration agreement provision included in a website or mobile app Terms of Service.
As detailed in prior articles, any company that collects lead contact data from its own website should include a mandatory arbitration provision in its Terms of Service. If properly drafted and disclosed, an arbitration provision is highly effective at keeping TCPA class actions at bay and is one of the most potent defenses a company can have.
Landmark Case for Online Arbitration Agreement - Coinbase Inc. v. Bielski
This fact was highlighted by Supreme Court’s recent decision in Coinbase Inc. v. Bielski, in which the Court held that a federal district court must stay litigation proceedings while an interlocutory appeal on the question of arbitration is ongoing.
Case Background
Plaintiff Abraham Bielski created an account to access Coinbase’s online currency and crypto-currency exchange platform in 2021. Shortly after opening the account, Bielski claimed that a scammer fraudulently accessed it to steal more than $30,000 and that Coinbase ignored his attempts at communication until he filed a class action lawsuit against the company.
In his Complaint, Bielski argued that Coinbase failed to comply with its responsibilities under the Electronic Funds Transfer Act (EFTA), including conducting a timely and good-faith investigation of fraudulent transfers. Coinbase moved to compel arbitration based on its user agreement, and the district court denied the motion to compel on the grounds that the arbitration clause and delegation clause were unconscionable.
Coinbase appealed, and the U.S. Court of Appeals for the Ninth Circuit denied the company’s motion to stay litigation proceedings during the appellate process. Coinbase then appealed that decision to the Supreme Court, and requested a ruling on the following question: Does a non-frivolous appeal of the denial of a motion to compel arbitration impede a district court’s jurisdiction to proceed with litigation pending appeal?
The Supreme Court accepted certiorari and agreed to hear the case to resolve a circuit court split on the issue. The Third, Fourth, Seventh, Tenth, Eleventh and D.C. Circuits previously answered the question posed to the Court by ruling that such an appeal requires a stay of district court proceedings, while the Second, Fifth, and Ninth Circuits held that a district court retains discretion to proceed with litigation while the appeal is pending.
The Ruling
In a 5-4 vote, the Court ruled in favor of Coinbase Inc., holding that a district court must stay its proceedings while an appeal on the question of arbitration is ongoing.
Justice Brett Kavanaugh, writing for the majority, opined that if district courts were allowed to move forward with pre-trial and trial proceedings while an appeal on arbitrability was in progress, the inherent benefits of arbitration could be lost forever. His rationale was that many of the advantages of arbitration – such as efficiency, reduced costs, and less intrusive discovery – might be irretrievably sacrificed.
Justice Ketanji Brown Jackson, voicing her dissenting opinion, criticized the majority opinion for seemingly "coming out of nowhere." She contended that there was no basis for depriving judges of the discretion traditionally entrusted to them, especially those judges closest to a case. Liberal Justices Sonia Sotomayor and Elena Kagan echoed Jackson's dissent. However, Justice Clarence Thomas, a conservative member of the court, only partially agreed with these views.
The Business Community's Support Coinbase’s Arbitration Agreement
Coinbase garnered significant support from the business community during this case. Businesses contended that allowing litigation to proceed would impose unnecessary costs, validating the need for arbitration. Contrarily, consumer advocates argued that judges should possess the discretion to decide which claims should proceed during an appeal, akin to their role in other legal areas.
The Supreme Court's Stance on Arbitration Over Last Two Decades
Over the past two decades, the Supreme Court has consistently reinforced the rights of companies to invoke arbitration clauses in their dealings with consumers and employees. The Court has often cited the 1925 Federal Arbitration Act, which mandates that courts must enforce arbitration agreements in the same manner as any other contract. The Act underscores that arbitration can be a less expensive process and provide defendants with key procedural advantages.
The Importance of Online Arbitration Agreements
Arbitration agreements are not unique to Coinbase; they are commonly used by many companies and are prevalent in online terms of service documents governing website or mobile app usage by consumers. As stated previously, a properly drafted and presented mandatory arbitration provision can circumvent what could otherwise be an enormously expensive TCPA class action. Thus, any company that directs marketing calls and texts to data it collects online would be well advised to incorporate a mandatory arbitration provision in their online Terms of Service.
The widespread absence of such provisions in the performance marketing space is therefore perplexing, given the vital role they play in aligning the legal parameters favorably with a company's interests.
However, the most cleverly drafted online terms are utterly useless if they are not presented in a manner that courts are willing to enforce. Courts routinely decline to enforce mandatory arbitration provisions included in online Terms of Service when website operators fail to present them in a clear and conspicuous manner sufficient to provide adequate notice to consumers that they were subject to the provision.
Employing a basic “browsewrap” strategy (simply inserting a link to online terms) is insufficientto render an online arbitration agreement enforceable. Instead, website operators should employ a “clickwrap” methodology in which consumers must affirmatively click an unchecked box after being presented with notice informing them that they are agreeing to the online terms, which includes an arbitration provision.
