Given the recent data breach and Coinbase’s user agreement that aims to force customers into arbitration rather than individual or class action lawsuits, it’s interesting to read the outcome of a recent arbitration case against Coinbase.

1. FACTUAL BACKGROUND 4. On January 5, 2024, Mr. Spilker filed a Demand for Arbitration with the American Arbitration Association (“AAA”) against Coinbase, Inc. seeking damages in the amount of $350,000 for withdrawal of staked cryptocurrency, allegedly without his authorization. Ex. A at 2. He alleged that he had been in contact with a “Coinbase Agent” and brought causes of action under the Electronic Funds Transfer Act, tort and common law, breach of contract, California law, Oregon and Idaho law, and federal commodities and securities laws. Ex. A at 2-3; Ex. B. 5. The User Agreement between Mr. Spilker and Coinbase, Inc. provided that the parties agreed to arbitrate any disputes, and that the arbitration would be “in accordance with the American Arbitration Association’s rules for consumer related disputes.” A true and correct copy of the User Agreement is attached hereto as Exhibit C. See Ex. C at § 7.2 (the parties’ agreement to arbitrate and agreement that an award may be enforced). 6. Arbitrator Diana Kruze was appointed as the neutral to decide this dispute. Mr. Spilker did not object at any time during the pendency of the arbitration to the selection of Arbitrator Kruze. 7. Coinbase filed a Motion for Summary Judgment on all Mr. Spilker’s claims. Briefing was completed on December 9, 2024. Ex. A at 1. 8. A hearing on the Motion for Summary Judgment was held on December 16, 2024. Id
9. On December 17, 2024, Arbitrator Kruze issued an Order Granting Dispositive Motion as to all of Mr. Spilker’s claims. Ex. A at 6 (“Respondent’s Motion for Summary Judgment is GRANTED. Claimant’s claims against Coinbase are dismissed.”). 10. The Final Award holds: a. Claimant’s EFTA cause of action is time-barred because the “one-year limitations period begins when the first unauthorized transfer occurs, not upon discovery by the consumer, and not when the consumer notifies the defendant of the unauthorized transfer.” Id. at 3, applying 15 U.S.C. §1693m(g) and Wike v. Vertrue, Inc., 566 F.3d 590,593 (6th Cir. 2009). b. “The undisputed facts show that a third party, not Coinbase, caused Claimant’s damages” and that “Claimant’s damages were the result of an intervening and superseding cause: the actions of a third-party scammer. Coinbase, as a matter of law, cannot be held liable for Claimant’s damages.” Ex. A at 4, citing May v. Google, LLC, No. 24-CV-01314- BLF, 2024 WL 4681604, at *10 (N.D. Cal. Nov. 4, 2024). c. The parties’ contract forecloses Mr. Spilker’s causes of action for breach of contract, negligence and tort claims, and claims under Idaho and Oregon law. Ex. A at 5. d. Pursuant to Melchoir v. New Line Prods., Inc., 106 Cal. App. 4th 779, 793 (2003), “Claimant’s cause of action for unjust enrichment fails because ‘there is no [such thing as a] cause of action in California for unjust enrichment.’” Ex. A at 5. e. Mr. Spilker’s CLRA claim fails “as courts have consistently held that the CLRA does not apply to cryptocurrency exchanges like Coinbase”. Id. at 6, citing various cases.

Customer lost $350,000 in September 2022 to a phishing attack from a scammer that the customer said had “confidential information that could have only been obtained with direct access to Coinbase’s database”.

14. Mr. Spilker took many protective measures to keep his account safe. He proactively took steps to secure his account with multifactor authentication safeguards and even purchased and used Yubikey, a hardware authentication device that is supposed to prevent phishing thefts. 15. Mr. Spilker also took adequate steps to protect his account information. He did not share his private keys or password with any third parties.
42. The thief called Spilker on his cell phone and claimed to be an agent calling on behalf Coinbase to report a security breach. Mr. Spilker was suspicious so requested confirmation that the caller was truly a Coinbase representative. 43. The thief responded by reciting confidential information that could have only been obtained with direct access to Coinbase’s database. 44. Specifically, the thief recited Spilker’s transaction history to him as well as certain account specifications that should have only been known to Coinbase. 45. The thief reported that there was a compromise to his account and stated that Coinbase would convert his Ethereum coins to cbETH in order to protect them.

Coinbase didn’t prevent the suspicious transfers, allegedly wiped customer’s transaction history, blamed the customer for the loss, then refused to reimburse. Arbitration concluded with $0 reimbursement.

56. To add insult to injury, Coinbase wiped clean the transaction history on his account. This was either reckless destruction or a deliberate tactic to keep Spilker from discovering the full extent of his losses. Case 3:25-cv-02573-LB Document 1 Filed 03/14/25 Page 26 of 134 13 57. Perhaps even more damaging is that it left Mr. Spilker without the requisite documentation to accurately file his taxes. 58. Coinbase went to great lengths to cover up its fraud. Coinbase dismissed his concerns, suggesting that he was conflating the cbETH launch (which permitted unwrapping) with the actual merge (which would permit unstaking). 59. Following a demand for repayment, Coinbase informed Mr. Spilker on February 14, 2023 that it would not reimburse his account, and blamed Spilker for supposedly taking inadequate safety measures.
Coinbase’s Failures to Take Reasonable Care 61. Coinbase should have prevented these unauthorized transactions based solely on the unusual timing of the consumer having his credentials changed, a demand from Mr. Spilker to lock his account, the previously unused wallet where the funds were sent and the unstaking of assets that were supposedly immobilized. 62. Other cryptocurrency exchanges do not allow these same criminal transfers because those exchanges use standard security measures which include freezing an account when certain actions – such as password changes and attempted transfers to newly linked wallets – occur, until the exchange verifies an account holder’s identity.

Arbitrator found the complaint had been filed too late, and that the customer had admitted that a third party rather than a Coinbase insider had performed the theft. Doesn’t appear the arbitrator investigated the claims of a possible breach, or how the hardware MFA was bypassed.

Here, it is undisputed that the unauthorized transfers occurred between September 7 and 9, 2022. Thus, Claimant needed to file his Demand by September 7, 2023. Claimant, however, did not initiate this action until January 5, 2024—well over one year later. Claimant’s EFTA claim is consequently barred by the applicable statute of limitations. In its opposition, Claimant contends that the limitations period began running only after Respondent’s refusal to investigate or refusal to refund Claimant’s account. (Opp., at 4-5.) Claimant cites no authority to support its assertion that the statute runs at a later time (such as upon completion of the exchange’s investigation). Moreover, even if the Arbitrator were to adopt Claimant’s unsupported view of the law, the undisputed facts show that Respondent investigated his complaint in September 2022 (the same month as the loss) and informed Claimant on October 1, 2022 following its investigation that his account was compromised by a third party, and that Coinbase was unwilling to reverse the transactions. Even under Claimant’s proposed rule, his claim had to be filed no later than October 1, 2023, still many months before he actually initiated this Arbitration. Second, the undisputed facts show that a third party, not Coinbase, caused Claimant’s damages. Causation is an essential component of all of Claimant’s causes of action. While Claimant initially pled that his loss must have been the result of an inside job, recently-produced materials show that allegation to be false. On September 9, 2022, Claimant filed a complaint with the Internet Crime Complaint Center (“IC3”). In that complaint, Claimant asserts that his “Coinbase account was scammed,” and identifies the name and phone number of the third-party scammer. Claimant did not disclose this complaint, or the identify of the scammer, to Respondent until December 2024, just days before the oral argument on this Motion. For its part, Respondent submitted a verified declaration that the individual named in Claimant’s IC3 complaint is not a Coinbase employee, and the phone number listed is not a Coinbase number.
Claimant does not dispute these facts in its briefing. In other words, Claimant’s damages were the result of an intervening and superseding cause: the actions of a third-party scammer. Coinbase, as a matter of law, cannot be held liable for Claimant’s damages. See May v. Google, LLC, No. 24-CV-01314-BLF, 2024 WL 4681604, at *10 (N.D. Cal. Nov. 4, 2024). Third, Claimant’s supplemental production also eviscerates many of Claimant’s other causes of action. For example, in his Demand, Claimant alleges that Coinbase never advised users that staked ETH could be wrapped and traded before his September 2022 loss. In its Motion and Reply, Coinbase previously relied on public statements announcing the launch of cbETH as early as August 2022. Claimant’s belated production, attached to Respondent’s supplemental briefing, also contains undisputed facts that Claimant was himself actually informed about cbETH’s launch before his funds were stolen. This disclosure significantly undermines Claimant’s misrepresentation claims under common law, securities law, and commodities law. Fourth, the parties’ contract forecloses many of Claimant’s causes of action. For example, Claimant’s breach of contract claim is undercut by section 6.6 of the UA, which explicitly apportions the risk of account compromises to Claimant as the user: “Any loss or compromise of . . . your personal information may result in unauthorized access to your Coinbase Account(s) by third-parties and the loss or theft of any Digital Assets and/or funds held in your Coinbase Account(s) and any associated accounts, including your linked bank account(s) and credit card(s). . . .We assume no responsibility for any loss that you may sustain due to compromise of account login credentials due to no fault of Coinbase.” Moreover, the UA’s choice-of-law provision in section 9.5 restricts Claimant to California law, foreclosing Claimant’s Idaho and Oregon-based causes of action. In addition, the UA and California law effectively cut off Claimant’s tort claims, such as his negligence cause of action. See, e.g., Berk v. Coinbase, Inc., 840 F. App’x 914 (9th Cir. Dec. 23, 2020) (Coinbase owes no independent tort duty of care beyond the promises made in the UA). Finally, there are other independent reasons why Claimant’s Demand cannot succeed. For example, Claimant’s cause of action for “unjust enrichment” fails because “there is no [such thing as a] cause of action in California for unjust enrichment.” Melchior v. New Line Prods., Inc., 106 Cal. App. 4th 779, 793 (2003). As another example, Claimant submitted no evidence of any false statements made by
Coinbase, about anything, to anyone. As a final example, Claimant’s CLRA cause of action likewise fails, as courts have consistently held that the CLRA does not apply to cryptocurrency exchanges like Coinbase. Jeong v. Nexo Fin. LLC, 2022 WL 174236, at *23 (N.D. Cal. Jan. 19, 2022); see also Suski v. Marden-Kane, Inc., 2022 WL 3974259, at *7 (N.D. Cal. Aug. 31, 2022) (dismissing CLRA claim with prejudice as cryptocurrency was not a “good” and Coinbase’s cryptocurrency exchange was not a “service”); Doe v. Epic Games, Inc., 435 F. Supp. 3d 1024, 1046 (N.D. Cal. 2020) (“Plaintiff’s CLRA claim therefore fails because the virtual currency at issue is not a good or service.”). As other legal issues and undisputed facts bar relief, the Arbitrator need not address the remaining reasons why Claimant’s Demand fails. The Arbitrator joins Respondent in noting that Claimant’s loss is unfortunate, regrettable, and upsetting. Claimant lost considerable funds, was clearly injured, and was the victim of a terrible scammer who feeds off other people’s misfortune and hard work. But the wrong-doer is not a party to this Arbitration. And the law and the parties’ contract ultimately do not make Coinbase responsible for Claimant’s loss based on the circumstances. IV. CONCLUSION Respondent’s Motion for Summary Judgment is GRANTED. Claimant’s claims against Coinbase are dismissed. The final hearing, and all other applicable deadlines, are off-calendar. ______December 17, 2024_____ _____________/s/ Diana Kruze______________________ Date Diana Kruze, Arbitrator
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