Coinbase can't force claim for injunctive relief into arbitration

Khan v. Coinbase, Inc., 2025 WL 2985378, No. A172063, --- Cal.Rptr.3d ----, (Ct. App. Oct. 23, 2025)

The appellate court affirmed the denial of Coinbase’s attempt to send Khan’s false advertising claims to arbitration, holding that Khan sought public injunctive relief and that the arbitration agreement’s attempted waiver of the right to seek public injunctive relief was invalid. It rejected Coinbase’s argument that the relief sought was not for the “public” because only people who signed up for a Coinbase account were exposed to the targeted representations.

Coinbase is a digital currency exchange. Khan alleges that Coinbase charges customers a “hidden” transaction fee, the spread fee. “For example, when a customer seeks to make a purchase, the spread fee is not displayed on any of the screens that the customer reviews when placing an order. Nor is the spread fee included in the amount of the ‘Coinbase fee’ that is displayed to consumers.” Instead, Coinbase quotes a market price for various digital currencies, and after the customer indicates how much of a particular currency he or she wants to purchase, the customer is shown an “Order Preview” with a slightly higher price, either one or two percent. The only way for a customer to discover that Coinbase is charging this added fee is if the customer clicks a “tooltip” icon next to the word “Price.”

Coinbase allegedly designed its platform to take advantage of less sophisticated customers by charging a spread fee only to consumers who use Coinbase’s “default trading option,” and not imposing a spread fee on customers who select the platform’s “Advanced” trading option. He brought UCL and FAL claims.

Coinbase’s TOS include an arbitration clause with a “Waiver of Class and Other Non-Individualized Relief.” It states that “only individual relief is available,” and it precludes any customer or user from consolidating his or her dispute with that of another customer or user. Additional language expressly prohibits an arbitrator from awarding non-individualized relief: “Subject to this Arbitration Agreement, the arbitrator may award declaratory or injunctive relief only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by the party’s individual claim.” And a severability clause provides that if the waiver is deemed “unenforceable as to a particular claim or request for relief (such as a request for public injunctive relief),” that claim or request for relief shall be severed and litigated in court. All disputes relating to the purported waiver of class or other non-individualized relief “shall be decided by a court of competent jurisdiction and not by an arbitrator.”

The trial court found that the arbitration agreement contained an impermissible waiver of the right to obtain public injunctive relief, and that Khan was indeed asserting claims for public injunctive relief. “[T]he injunctive relief sought is not limited to private parties or the putative class and will benefit the public at large,” and the “nature of the harm alleged” and “the statutory basis” for Khan’s claims showed that he was seeking public injunctive relief. Thus, he could not be required to arbitrate.

The California Supreme Court has held that a provision in the parties’ arbitration agreement that purported to waive the right to seek public injunctive relief in any forum was invalid. Injunctive relief available under California’s consumer protection statutes can be either public or private: “public injunctive relief ... is relief that has ‘the primary purpose and effect of’ prohibiting unlawful acts that threaten future injury to the general public”; by contrast, relief “that has the primary purpose or effect of redressing or preventing injury to an individual plaintiff—or to a group of individuals similarly situated to the plaintiff—does not constitute public injunctive relief.”

Public injunctive relief is available to private plaintiffs suing for violations of California’s consumer protection statutes, notwithstanding amendments to those laws that require private plaintiffs to have suffered individual injury. A private plaintiff who has suffered an injury in fact due to a violation of the UCL or FAL is filing the lawsuit “on his or her own behalf, not ‘on behalf of the general public,’ ” even if one of the remedies sought is injunctive relief, “ ‘the primary purpose and effect of’ which is ‘to prohibit and enjoin conduct that is injurious to the general public.’ ”

The waiver of public injunctive relief was invalid under Cal. Civil Code section 3153, which provides: “Any one may waive the advantage of a law intended solely for their benefit. But a law established for a public reason cannot be contravened by a private agreement.” Waiver of a statutory right is permissible only if the “ ‘statute’s “public benefit ... is merely incidental to [its] primary purpose,” ’ ” and “ ‘ “any public purpose” ’ ” would not be seriously compromised by the waiver. This is not true of waiver of public injunctive relief under consumer protection laws.

Here, “Khan alleges that particular Coinbase conduct in operating its online cryptocurrency exchange constitutes a deceptive business practice that is likely to deceive or confuse the public; he alleges this unlawful conduct is ongoing; and he seeks injunctive relief solely to prohibit Coinbase from continuing to violate the statutes in this manner.” That was enough to establish the public nature of the relief Khan sought, and how that relief would benefit the general public if he is able to establish his claim. “[A] complaint to enjoin future violations of California’s consumer protection laws seeks public injunctive relief when the relief sought is not limited to the plaintiff or a defined group, but is oriented to and for the benefit of the public at large.”  Here, Khan sought relief against practices that allegedly mislead members of the public who seek to buy, sell, or convert digital currency on Coinbase’s platform.

Thus, the waiver was invalid, even if included in an arbitration agreement; arbitration is on an equal footing with other contracts, but the FAA’s savings clause permits courts to declare arbitration agreements unenforceable “ ‘ “upon such grounds as exist at law or in equity for the revocation of any contract.” ’ ” “The principle that a law established for a public purpose cannot be contravened by private agreement is a generally applicable contract defense, not a defense that applies only to arbitration or that derives its meaning from the fact an arbitration agreement is at issue.”

 

Coinbase contended that the relief sought in the complaint was private because Khan sought to compel Coinbase to make additional disclosures to existing customers, and thus challenged conduct that is not directed at the public. But the complaint didn’t seek an order compelling Coinbase to make any disclosures specifically to Khan or any defined group of individuals.

Coinbase responded that the injunction Khan seeks couldn’t possibly benefit the public because only existing Coinbase customers could access the platform on which the allegedly unlawful conduct occurs. But the court wasn’t willing to allow Coinbase to “insulate itself from a public injunction simply by requiring a consumer to create a user account before engaging with Coinbase and its platform. In our view, the unlawful business practice that Khan describes and seeks to enjoin affects the general public because any member of the public may access and elect to use Coinbase’s online platform.” The user account requirement was “simply the online equivalent of driving to, parking at, and walking into a brick-and-mortar store,” “the threshold a potential customer must cross before transacting business with Coinbase.” Coinbase did not “demonstrate that it restricts access to its services in a meaningful way,” or that “any member of the public cannot simply create credentials and access Coinbase’s services.” “[W]e would surely say that an injunction preventing a grocery store from advertising one price in the grocery aisle, while charging a higher price at the register, was a public injunction even though it protected only customers who entered the store to buy groceries.”

Coinbase argued that the threshold of establishing a user account was materially different from walking into a store because signing up for a user account requires a potential customer to sign a contract agreeing to arbitrate claims, “but of course no agreement to arbitrate a claim seeking public injunctive relief is enforceable, so we do not see this difference as dispositive.”

In addition, conduct directed at a defendant’s customers can at least sometimes support a request for public injunctive relief. “When the primary purpose of an injunction is to prohibit an ongoing violation of consumer protection laws, the relief sought is usually public relief because the benefit to the plaintiff or a group of similarly situated individuals is not materially different from the benefit that inures to the broader public.” Here, Khan wasn’t seeking a specific change to Coinbase’s platform that would benefit him alone, or existing account holders alone, but not members of the public who become future users of the Coinbase platform. An injunction can both benefit a business’s existing customers and also benefit the public generally.