Leidel v. Coinbase, Inc., 17-12728
| Decision Date | 23 April 2018 |
| Docket Number | No. 17-12728,17-12728 |
| Parties | BRANDON LEIDEL, individually and on behalf of all others similarly situated, Plaintiff-Appellee, JAMES D. SALLAH, as Receiver/Corporate Monitor of Project Investors, Inc. d.b.a. Cryptsy, Plaintiff, v. COINBASE, INC., a Delaware Corporation d.b.a. Global Digest Asset Exchange (GDAX), Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
[DO NOT PUBLISH]
Non-Argument Calendar
D.C. Docket No. 9:16-cv-81992-KAM
Appeal from the United States District Court for the Southern District of Florida Before WILLIAM PRYOR, JULIE CARNES, and ANDERSON, Circuit Judges.
Defendant Coinbase, Inc. ("Defendant") appeals the denial of its motion to compel arbitration. After careful review, we affirm.
Defendant is a financial services company registered as a money services business with the U.S. Department of the Treasury, Financial Crimes Enforcement Network. See 31 C.F.R. §§ 1010.100(ff), 1022.380. As part of its business, Defendant operates a website where its customers can purchase, exchange, and sell digital cryptocurrencies, such as Bitcoin. One of the services that Defendant provides is a "Conversion Service" through which its customers can convert their Bitcoin into cash. For a fee, Defendant will buy its customers' Bitcoin at a predetermined "Conversion Rate" published on its website.
In May 2013, Paul Vernon opened two accounts through Defendant's website—one for himself and one for his company, Project Investors, Inc., which did business under the name Cryptsy. Cryptsy was a cryptocurrency exchange where consumers could trade Bitcoin and other digital cryptocurrencies. Vernon was its founder, president, and CEO.
Cryptsy dealt exclusively in cryptocurrencies, and all of its customers' account balances were stated in Bitcoin denominations. Cryptsy utilized Defendant's website to convert Bitcoin into cash.
When Vernon opened the accounts through Defendant's website, he clicked a box to accept the terms of Defendant's User Agreement. When Defendant updated the terms of that agreement in December 2014, Vernon accepted the new terms, both on behalf of himself and on behalf of Cryptsy. Each iteration of the User Agreement contained an arbitration clause that provided, in relevant part, as follows:
Except for claims for injunctive or equitable relief or claims regarding intellectual property rights (which may be brought in any competent court without the posting of a bond), any dispute arising under this Agreement shall be finally settled on an individual basis in accordance with the American Arbitration Association's rules for arbitration of consumer-related disputes and you and [Defendant] hereby expressly waive trial by jury. The arbitration shall take place in San Francisco, California, in the English language and the arbitral decision may be enforced in any court.
The 2014 User Agreement also contained a choice-of-law provision, which provided that the agreement would be governed by California law, "except to the extent governed by federal law."
Over the course of about three years, Vernon used Defendant's services to convert more than $8 million of Cryptsy's customers' Bitcoin into cash. That cashwas deposited by Defendant into Vernon's personal bank account. Vernon has since fled the country.
In early 2016, certain of Cryptsy's customers filed a class action lawsuit against Cryptsy and Vernon.1 One of those customers was Brandon Leidel.2 Early in those proceedings, the district court appointed a receiver to take control of Cryptsy.
Leidel and the receiver for Cryptsy filed this action against Defendant in December 2016. Leidel sought to represent a class of all Cryptsy customers whose money was stolen by Vernon through the use of Defendant's services. Leidel brought claims against Defendant for (1) aiding and abetting Cryptsy's breaches of its fiduciary duties to its customers; (2) aiding and abetting Vernon's theft of Cryptsy's customer's assets; (3) negligence in performing its duties as a depository of Cryptsy's and Vernon's accounts; and (4) unjust enrichment with respect to the fees that Defendant collected on the conversion of Bitcoin that rightfully belonged to Cryptsy's customers and was converted into cash that was deposited into Vernon's personal bank account. The receiver brought essentially the same claimson his own behalf. All of the claims were based to some extent on Defendant's alleged failure to (1) adequately monitor or investigate Cryptsy's and Vernon's use of Defendant's website; (2) detect Vernon's theft of Cryptsy's customers' Bitcoin; and (3) report suspicious activity by Vernon or Cryptsy to the appropriate authorities. The plaintiffs alleged that Defendant had such duties under various federal statutes and regulations, particularly the Bank Secrecy Act, 31 U.S.C. § 5311 et seq., and its implementing regulations, see 12 C.F.R. §§ 208.62-.63.
Defendant moved the district court to compel arbitration of all of the claims asserted in the complaint. Defendant argued that the receiver was bound by the arbitration clause in the User Agreements that Cryptsy, through Vernon, entered into in 2013 and 2014 because the receiver merely stepped into the shoes of Cryptsy with respect to those agreements.
Defendant further argued that, under the doctrine of equitable estoppel, Leidel was also bound by the arbitration clause in the User Agreements entered into by Cryptsy and Vernon. According to Defendant, Leidel's claims relied on there being some duty owed by Defendant to Cryptsy's customers, and that such a duty arose, if at all, under the User Agreements. It further noted that it would have had no relationship with Cryptsy or Vernon in the absence of the User Agreements. Accordingly, Defendant argued, all of Leidel's claims were "based upon" the User Agreements that established Cryptsy's and Vernon's accounts on Defendant'swebsite. Notably, Defendant argued that Leidel was bound by the arbitration clause regardless of whether the district court applied Florida law or California law.
Shortly thereafter, Defendant and the receiver stipulated to the dismissal of the receiver's claims so that those claims could be pursued in arbitration.3 The district court later denied Defendant's motion to compel arbitration of the claims brought by Leidel.
Looking to Florida law, the district court reasoned that Leidel's claims did not arise under the User Agreements because Leidel was "not asserting any rights or benefits under" those agreements, which was evidenced (but not established) by the fact that Leidel had not brought a claim for breach of contract, but had instead alleged only tort claims. The district court further reasoned that the User Agreements "had nothing to do with [Defendant's] alleged wrongful conduct," as any "indirect benefits" Leidel had received from Cryptsy's and Vernon's use of Defendant's services did not arise from the User Agreements, but instead arose "from the regulatory scheme under which Defendant operates."
Defendant appeals the district court's denial of its motion to compel arbitration of Leidel's claims. We have jurisdiction under 9 U.S.C. § 16(a)(1)(B).
Defendant argues that, under the doctrine of equitable estoppel, Leidel is bound by the arbitration clause in the User Agreements entered into by Cryptsy and Vernon. Notably, equitable estoppel is the only theory advanced by Defendant as to why Leidel should be compelled to arbitrate the claims he asserts in his class action complaint. Furthermore, although Defendant contends that California law controls in this case, it argues that the outcome is the same regardless of whether California law, Florida law, or federal law applies.
State law controls on the issue of whether an arbitration clause in a contract can be enforced against a nonsignatory to that contract. See Kroma Makeup EU, LLC v. Boldface Licensing + Branding, Inc., 845 F.3d 1351, 1354, 1355 n.1 (11th Cir. 2017); Lawson v. Life of the S. Ins. Co., 648 F.3d 1166, 1170 (11th Cir. 2011). Accordingly, whether the User Agreements in this case can be enforced against Leidel—a nonsignatory to those agreements—under a theory of equitable estoppel is an issue of state law. Because the outcome in this case is the same under both Florida law and California law, we need not decide which law applies.4
We review de novo a district court's denial of a motion to compel arbitration. Kroma Makeup EU, LLC, 845 F.3d at 1354.
Under Florida law, in order to compel arbitration under a theory of equitable estoppel, the party seeking to compel arbitration must show both that the plaintiff is relying on a contract to assert its claims and that the scope of the arbitration clause in that contract covers the dispute. See id. ( Koechli v. BIP Int'l, Inc., 870 So. 2d 940 (Fla. 1st DCA 2004)). In analyzing the scope of an arbitration clause, Florida courts draw a distinction between clauses that require arbitration of claims "arising out of" the subject contract and those that require arbitration of claims "arising out of or relating to" the contract. See Jackson v. Shakespeare Found., Inc., 108 So. 3d 587, 593 (Fla. 2013) (emphasis in original). The former are considered to be "narrow in scope" and apply only to "those claims that have a direct relationship to a contract's terms and provisions." Id. The latter are considered to be "broad in scope" and apply to "claims that are described as having a 'significant relationship' to the contract—regardless of whether the claim is founded in tort or contract law." Id. (quoting Seifert v. U.S. Home Corp., 750 So. 2d 633, 637-38 (Fla. 1999)).
"A 'significant relationship' between a claim and an arbitration provision does not necessarily exist merely because the parties in the dispute have a contractual relationship." Id.; see also Seifert, 750 So. 2d at 638 (...
To continue reading
Request your trial