Jeffrey Berk v. Coinbase, Inc.

• Court: Court of Appeals for the Ninth Circuit
• Decided: December 23, 2020
• Docket: 19-16594
• Status: Unpublished

Opinion

FILED NOT FOR PUBLICATION DEC 23 2020 UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

JEFFREY BERK; et al., No. 19-16594

Plaintiffs-Appellees, D.C. No. 3:18-cv-01364-VC

v. MEMORANDUM* COINBASE, INC., DBA Global Digital Asset Exchange, GDAX, a Delaware corporation; et al.,

Defendants-Appellants.

Appeal from the United States District Court for the Northern District of California Vince Chhabria, District Judge, Presiding

Argued and Submitted December 10, 2020 San Francisco, California

Before: TALLMAN, MURGUIA, and CHRISTEN, Circuit Judges.

Defendant Coinbase, Inc. appeals the district court’s order denying its

motion to compel arbitration. Coinbase argues that plaintiffs’ surviving claim is

subject to mandatory arbitration pursuant to the arbitration clause contained in

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Coinbase’s User Agreement. We have jurisdiction pursuant to 9 U.S.C. §

16(a)(1)(B), and we reverse the district court’s order.

1. We review de novo a district court’s decision to grant or deny a motion to

compel arbitration. Stover v. Experian Holdings, Inc., 978 F.3d 1082, 1085 (9th

Cir. 2020) (quoting Bushley v. Credit Suisse First Boston, 360 F.3d 1149, 1152

(9th Cir. 2004)). We also review the validity and scope of an arbitration clause de

novo. Id. (quoting Knutson v. Sirius XM Radio Inc., 771 F.3d 559, 564 (9th Cir.

2014)). The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., requires federal

district courts to compel arbitration of claims encompassed by a written and

enforceable arbitration agreement. 9 U.S.C. § 3. On a motion to compel

arbitration pursuant to the FAA, the role of the district court is limited to

determining: (1) whether a valid arbitration agreement exists; and (2) whether the

agreement encompasses the dispute(s) at issue. Revitch v. DIRECTV, LLC, 977

F.3d 713, 716 (9th Cir. 2020).

Plaintiffs do not contest that they agreed to the terms of the User Agreement

or that the User Agreement contained a valid arbitration clause. The only question

before us is whether the arbitration clause in the User Agreement encompasses the

plaintiffs’ claim. The User Agreement’s arbitration clause provides that “any

dispute arising under this Agreement shall be finally settled in binding arbitration,

2 on an individual basis . . . .” We have held that a claim “arises under” an

agreement when it “relat[es] to the interpretation and performance of the contract

itself.” Tracer Rsch. Corp. v. Nat’l Envtl. Servs. Co., 42 F.3d 1292, 1295 (9th Cir.

1994) (quoting Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458,

1464 (9th Cir. 1983)).

Here, plaintiffs’ surviving claim “arises under” the User Agreement.

Coinbase operates the Global Digital Asset Exchange (GDAX), through which

users may buy and sell cryptocurrencies pursuant to the User Agreement.

Plaintiffs’ claim concerns the manner in which Coinbase operated GDAX when it

launched Bitcoin Cash (BCH) trading. Specifically, plaintiffs allege Coinbase

“fail[ed] to make accurate pre-announcements about the [launch of BCH trading],

and to take deposits sufficiently in advance to allow liquidity to develop, and to be

able to open an orderly market.” Although plaintiffs have framed their claim as

one for “negligence” sounding in tort, we conclude the claim “relat[es] to the

interpretation and performance of the [User Agreement] itself,” Tracer, 42 F.3d at

1295, and it is thus encompassed by the User Agreement’s arbitration clause. See

Aas v. Superior Court, 12 P.3d 1125, 1135 (Cal. 2000), superseded by statute on

another ground as stated in Rosen v. State Farm Gen. Ins. Co., 70 P.3d 351 (Cal.

2003) (“A person may not ordinarily recover in tort for the breach of duties that

3 merely restate contractual obligations. Instead, [c]ourts will generally enforce the

breach of a contractual promise through contract law, except when the actions that

constitute the breach violate a social policy that merits the imposition of tort

remedies.” (internal quotation marks omitted)).

Plaintiffs contend that their claim sounds in tort under California law

because Coinbase owed an independent duty of care to ensure a functioning

marketplace for BCH pursuant to Biakanja v. Irving, 320 P.2d 16 (Cal. 1958). We

disagree. As a general rule, California law provides “a business entity has no duty

to prevent financial loss to others with whom it deals directly.” Quelimane Co. v.

Stewart Title Guar. Co., 960 P.2d 513, 533 (Cal. 1998). In Biakanja, the

California Supreme Court carved out a narrow exception to this general rule.

Biakanja set forth a six-factor test to determine whether a defendant has a tort duty

of care to third-parties not in privity. 320 P.2d at 19. Lower California courts have

declined to extend Biakanja to cases where the parties are in privity with one

another. See, e.g., Stop Loss Ins. Brokers, Inc. v. Brown & Toland Med. Grp., 143

Cal. App. 4th 1036, 1042 (2006).

In Stop Loss, the California Court of Appeal explained that Biakanja did not

“create broad tort duties in arms-length business dealings whenever it is convenient

to resort to the law of negligence.” Id. Instead, Biakanja applied to the narrow

4 class of cases where “(1) the defendant was acting pursuant to a contract, and (2)

the defendant’s negligent performance of the contract injures a third party.” Id.

(emphasis added). The court cautioned that applying Biakanja to cases in which

the parties are in privity “would circumvent this rule and blur the law’s distinction

between contract and tort remedies.”1 Id. at 1043.

Quite unlike the parties in Biakanja, Coinbase and the plaintiffs are not

strangers—they are in privity via the User Agreement. Plaintiffs’ alleged injuries

resulted from their direct, arms-length dealings with Coinbase. Accordingly, we

are persuaded that the California Supreme Court would not extend a special duty of

care between Coinbase and plaintiffs. To the extent Coinbase owed plaintiffs a

duty related to the launch of BCH trading, it arose under the User Agreement.

We reverse the district court’s order denying Coinbase’s motion to compel

arbitration and remand with instructions to compel arbitration.

REVERSED AND REMANDED.

1 Indeed, the California Supreme Court has gone to great lengths to distinguish tort duties from those arising from contracts between the parties. See, e.g. Aas, 12 P.3d at 1135–36; Erlich v. Menezes, 981 P.2d 978, 983 (Cal. 1999); Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454, 460 (Cal. 1994). 5