Alfia v. Coinbase Global, Inc.

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ADAM ALFIA, Case No. 21-cv-08689-HSG

8 Plaintiff, ORDER GRANTING MOTION TO COMPEL ARBITRATION 9 v. Re: Dkt. No. 18 10 COINBASE GLOBAL, INC., 11 Defendant.

12 13 Pending before the Court is Defendant Coinbase Global, Inc.’s motion to compel 14 arbitration, briefing for which is complete. See Dkt. Nos. 18 (“Mot.”), 22 (“Opp.”), 23 (“Reply”).1 15 For the reasons detailed below, the Court GRANTS the motion. 16 I. BACKGROUND 17 Plaintiff alleges in this proposed class action that Defendant failed to properly secure his 18 Coinbase account. See generally Dkt. No. 1 (“Compl.”). Plaintiff alleges that an unauthorized 19 purchase of $50,000 in cryptocurrency was made from his Coinbase account and an equivalent 20 amount of money was deducted from his personal banking account without his knowledge or 21 approval. Id. ¶¶ 12-13. Plaintiff asserts that because of Defendant’s conduct, he has suffered 22 significant economic loss, worry, and stress. Id. ¶¶ 26, 30, 35, 37. Plaintiff alleges multiple 23 causes of action, including claims for breach of contract for violating Coinbase’s Privacy Policy, 24 negligently securing Plaintiff’s private information and accounts, and misrepresenting the security 25 and confidentiality of Plaintiff’s information. Id. ¶¶ 22-37. 26 27 II. LEGAL STANDARD 1 The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1 et seq., sets forth a policy favoring 2 arbitration agreements and establishes that a written arbitration agreement is “valid, irrevocable, 3 and enforceable.” 9 U.S.C. § 2; Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1621 (2018) (noting 4 federal policy favoring arbitration); Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 5 U.S. 1, 24 (1983) (same). The FAA allows that a party “aggrieved by the alleged failure, neglect, 6 or refusal of another to arbitrate under a written agreement for arbitration may petition any United 7 States district court . . . for an order directing that . . . arbitration proceed in the manner provided 8 for in such agreement.” 9 U.S.C. § 4. This federal policy is “simply to ensure the enforceability, 9 according to their terms, of private agreements to arbitrate.” Volt Info. Scis., Inc. v. Bd. of 10 Trustees of Leland Stanford Jr. Univ., 489 U.S. 468, 476 (1989). Courts must resolve any 11 “ambiguities as to the scope of the arbitration clause itself . . . in favor of arbitration.” Id. 12 When a party moves to compel arbitration, the court must determine (1) “whether a valid 13 arbitration agreement exists” and (2) “whether the agreement encompasses the dispute at issue.” 14 Lifescan, Inc. v. Premier Diabetic Servs., Inc., 363 F.3d 1010, 1012 (9th Cir. 2004). The 15 agreement may also delegate gateway issues to an arbitrator, in which case the court’s role is 16 limited to determining whether there is clear and unmistakable evidence that the parties agreed to 17 arbitrate arbitrability. See Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). In either 18 instance, “before referring a dispute to an arbitrator, the court determines whether a valid 19 arbitration agreement exists.” Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 20 530 (2019) (citing 9 U.S.C. § 2). 21 III. DISCUSSION 22 The parties formed a valid arbitration agreement. 23 The party seeking to compel arbitration bears the burden of proving the existence of the 24 agreement by a preponderance of the evidence. See Norcia v. Samsung Telecomms. Am., LLC, 25 845 F.3d 1279, 1283 (9th Cir. 2017). In determining whether an agreement was formed, the Court 26 applies “general state-law principles of contract interpretation,” without a presumption in favor of 27 1 arbitrability.2 See Goldman, Sachs & Co. v. City of Reno, 747 F.3d 733, 742 (9th Cir. 2014) 2 (quotation omitted). The Ninth Circuit has recognized that internet-based commerce “has not 3 fundamentally changed the principles of contract.” Nguyen v. Barnes & Noble, Inc., 763 F.3d 4 1171, 1175 (9th Cir. 2014). One of those principles is that, in order for a contract to be formed, 5 there must be mutual manifestation of assent. Id. Courts generally consider online contracts as 6 one of two kinds: (1) “clickwrap” agreements where a user is presented with the terms and must 7 click on a box to indicate that they agree before they may continue, which courts generally 8 enforce; or (2) “browsewrap” agreements where the website’s terms are provided to users via a 9 hyperlink at the bottom of a webpage and a user’s assent to the terms is assumed by their 10 continued use of the website, which courts often view with skepticism. See id. at 1175–77. 11 Defendant explains that to create his Coinbase account, Plaintiff had to click a “check box” 12 next to the language “I certify that I am 18 years of age or older, and I agree to the User 13 Agreement and Privacy Policy,” with both agreements accessible via hyperlink.3 Mot. at 2-3, 4; 14 see Dkt. No. 18-1 Decl. of Carter McPherson-Evans (“McPherson-Evans Decl.”) ¶ 9, Ex. 2. 15 Defendant asserts that Plaintiff assented to the hyperlinked User Agreement (“2017 User 16 Agreement”) in creating a Coinbase account on December 18, 2017. Mot. at 4. 17 The 2017 User Agreement included the following arbitration provision:

18 If you have a dispute with Coinbase, we will attempt to resolve any such disputes through our support team. If we cannot 19 resolve the dispute through our support team, you and we agree that any dispute arising under this Agreement shall 20 be finally settled in binding arbitration, on an individual basis, in accordance with the American Arbitration 21 Association’s rules for arbitration of consumer-related disputes (accessible at 22 https://www.adr.org/sites/default/files/Consumer%20Rul es.pdf) and you and Coinbase hereby expressly waive trial 23 by jury and right to participate in a class action lawsuit or class-wide arbitration. . . 24

25 2 Here, the 2017 User Agreement contains a California choice-of-law provision. McPherson- Evans Decl., Ex. 3 § 8.10. 26

3 According to Defendant, the terms “User Agreement” and “Privacy Policy” became underlined 27 “when hovered over by a cursor,” indicating they were hyperlinked. McPherson-Evans Decl. ¶ 9 1 McPherson-Evans Decl., Ex. 3 § 7.2 (emphasis indicated in original).4 2 Plaintiff’s assent was similar to a “clickwrap” agreement—he clicked a box stating that he 3 agreed to the User Agreement, which was hyperlinked for easy accessibility. See Mot. at 4; 4 McPherson-Evans Decl. ¶ 9, Ex. 2. He had clear notice of the terms of the 2017 User Agreement 5 and took physical action to manifest his assent. Plaintiff does not contest that he agreed to the 6 2017 User Agreement at the time he created a Coinbase account, see Opp. at 8, and the Court finds 7 that there was a mutual manifestation of assent to the 2017 User Agreement.5 Therefore, the Court 8 concludes that the parties entered into a binding arbitration agreement. 9 The arbitration agreement covers this dispute. 10 The second question for the Court is whether the arbitration agreement encompasses the 11 dispute at issue. Lifescan, Inc., 363 F.3d at 1012.6 12 Here, the scope of the arbitration provision is broad—it includes any disputes arising under 13 the 2017 User Agreement. McPherson-Evans Decl., Ex. 3 § 7.2. (“[Y]ou and we agree that any 14 dispute arising under this Agreement shall be finally settled in binding arbitration. . .”). As the 15 Ninth Circuit has held, a claim “arises under” an agreement when it “relat[es] to the interpretation 16 and performance of the contract itself.” Tracer Research Corp. v. Nat’l Envtl. Servs. Co., 42 F.3d 17 1292, 1295 (9th Cir. 1994) (citation omitted). The contract here concerns the provision of 18 Coinbase services through a Coinbase account. See generally McPherson-Evans Decl., Ex. 3. 19 Plaintiff’s claims relate to Defendant’s provision of Coinbase services through his Coinbase 20 account, and the arbitration agreement therefore encompasses the dispute. 21

22 4 Coinbase submitted the 2017 User Agreement as Exhibit 3 in text-only format. McPherson- Evans Decl. ¶ 14. Double asterisks indicate that the text appeared in bold font when viewed 23 online. Id.; see e.g., Ex. 3 § 7.2.

24 5 Since Plaintiff assented to the 2017 User Agreement that included a valid arbitration provision, the Court does not need to reach whether Plaintiff assented to the 2019 User Agreement. See Mot. 25 at 4-5, 7-15.

26 6 In the context of consumer contracts involving at least one unsophisticated party, the Court is not persuaded that incorporating the American Arbitration Association rules amounts to a clear and 27 unmistakable delegation of arbitrability questions to the arbitrator. See Eiess v. USAA Federal 1 Plaintiff argues that the arbitration provision does not apply to privacy-related claims 2 because the 2017 User Agreement and the Privacy Policy are separate agreements. Opp. at 8. 3 Plaintiff contends that since the Privacy Policy does not have an arbitration provision of its own, 4 he cannot be forced to arbitrate. Opp. at 10-11. 5 However, the 2017 User Agreement incorporates the Privacy Policy by reference. Under 6 California Law, “incorporation by reference requires: (1) the reference to the incorporated writing 7 must be clear and unequivocal, (2) the reference must be called to the attention of the other party, 8 and (3) the terms of the incorporated writing must be known or easily available to the parties.” 9 American Metal & Iron, Inc. v. American Employers Group, Inc., 2007 WL 972887, *2 (N.D. Cal. 10 March 29, 2007); see also Poublon v. C.H. Robinson Company, 846 F.3d 1251, 1269 (9th Cir. 11 2017). In this case, the 2017 User Agreement clearly references the Privacy Policy, and the 12 Privacy Policy was easily accessible to any user signing up for Coinbase’s services via a hyperlink 13 on the account creation page. See McPherson-Evans Decl., Ex. 3 at § 8.4 (“This Agreement, the 14 Privacy Policy, E-Sign Consent, and Appendices incorporated by reference herein comprise the 15 entire understanding and agreement between you and Coinbase. . .”). Plaintiff notes that the 16 Privacy Policy does not mention the User Agreement, see Opp. at 12-13, but reciprocal 17 incorporation in both documents is not required for there to be incorporation by reference. 18 Plaintiff admits his claims relate to the Privacy Policy, which is part of the “entire agreement” 19 formed by the parties, further reinforcing the conclusion that the arbitration agreement 20 encompasses the dispute at issue. 21 The arbitration provision is not unconscionable and is therefore enforceable. 22 Under California law, an agreement is enforceable unless it is both procedurally and 23 substantively unconscionable. Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1280-81 (9th Cir. 24 2006). Procedural and substantive unconscionability need not be present in equal amounts. Id. 25 The two are evaluated on a “sliding scale,” meaning that a stronger showing of procedural 26 unconscionability means that less evidence of substantive unconscionability is needed to establish 27 overall unconscionability, and vice versa. Id. 1 unconscionable, California courts consider several factors, including: (1) the relative bargaining 2 power and sophistication of the parties, (2) the complaining parties' access to reasonable market 3 alternatives, and (3) the degree to which an offending provision of a contract is “buried in a 4 lengthy . . . agreement.” Shierkatz Rllp v. Square, Inc., 2015 WL 9258082, *9 (N.D. Cal. 5 December 17, 2015); see also Nagrampa, 469 F.3d at 1281-84. California courts “recognize that 6 showing a contract is one of adhesion does not always establish procedural unconscionability.” 7 Grand Prospect Partners, L.P. v. Ross Dress for Less, Inc., 232 Cal. App. 4th 1332, 1348 n.9 8 (2015); see also Nagrampa, 469 F.3d at 1281. 9 Considering these factors, the Court finds a minimal degree of procedural 10 unconscionability arising from the adhesive nature of the 2017 User Agreement. While the 11 relative bargaining power between the parties favors Defendant and the 2017 User Agreement was 12 presented on a take-it-or-leave-it basis, nothing in the record suggests that Coinbase was 13 Plaintiff’s only option for cryptocurrency services. And while Plaintiff argues that Coinbase never 14 called the arbitration clause to his attention, see Opp. at 21, the arbitration provision in the 2017 15 User Agreement is clearly labeled “Arbitration; Waiver of Class Action” in bold print. See 16 McPherson-Evans Decl., Ex. 3 § 7.2 (emphasis in original). The terms of the arbitration 17 provision, unlike the majority of the contract, are also in bold font. Id.; see also McPherson-Evans 18 Decl. ¶ 14. 19 “[A]n arbitration provision is substantively unconscionable if it is ‘overly harsh’ or 20 generates ‘one-sided results.’” Nagrampa, 469 F.3d at 1280-81 (quoting Armendariz v. 21 Foundation Health Psychcare Svcs. Inc., 24 Cal.4th 83, 114 (2000)); see also Pinnacle Museum 22 Tower Ass'n v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 246 (2012). However, “[a] 23 contract term is not substantively unconscionable when it merely gives one side a greater benefit; 24 rather, the term must be so one-sided as to shock the conscience.” Pinnacle, 55 Cal. 4th at 246 25 (internal quotation marks omitted). 26 Plaintiff contends that the arbitration provision is substantively unconscionable because it 27 prohibits class-wide claims and provides relatively greater benefit to Coinbase. See Opp. at 21-22. 1 See AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011); see also Carter v. Rent-A- 2 Center, Inc., 718 F.Appx. 502, 504 (9th Cir. 2017) (interpreting “Concepcion as foreclosing any 3 argument that a class action waiver, by itself, is unconscionable under state law or that an 4 || arbitration agreement is unconscionable solely because it contains a class action waiver”). And 5 the provision binds both parties to arbitrate designated claims. The Court finds that the arbitration 6 || provision is not substantively unconscionable. 7 Accordingly, the arbitration provision is not unconscionable and is therefore enforceable. 8 || Iv. CONCLUSION 9 The Court GRANTS the motion to compel arbitration. This action is STAYED pending 10 || resolution of the arbitration. The parties are directed to file a joint status report regarding the 11 status of the arbitration proceeding 120 days from the date of this order and every 120 days 12 || thereafter unless otherwise ordered. The parties are also directed to jointly notify the Court within 5 13 48 hours of the conclusion of the arbitration proceeding. IT IS SO ORDERED. 3 15 |} Dated: 7/22/2022 16 Alaupued 3 dlp. HAYWOOD S. GILLIAM, JR. 17 United States District Judge 18 19 20 21 22 23 24 25 26 27 28