The Eleventh Circuit recently affirmed the denial of a motion to compel arbitration based on equitable estoppel in a putative class action by victims of a cryptocurrency exchange website (Cryptsy) CEO’s theft of money derived from the conversion of cryptocurrencies into cash, regardless of which state’s law applied. The class complaint filed on behalf of Crypsty customers and the Cryptsy receiver alleged Coinbase, an online marketplace for the sale, exchange, and purchase of cryptocurrencies, failed to adequately monitor Crypsty, detect the theft, and report suspicious activity as required under the federal Bank Secrecy Act. The court analyzed the equitable estoppel basis to compel arbitration under both California and Florida law and found that regardless of which applied, the motion to compel must be denied.

First, the court assessed the present claims under Florida’s two standards for compelling arbitration under an equitable estoppel theory: the narrow scope of arbitration clauses requiring arbitration for claims “arising out of” the subject contract and the broad scope for clauses requiring arbitration for claims “arising out of or relating to” the contract. The Eleventh Circuit concluded that because the claims were based on duties and obligations imposed by the Bank Secrecy Act—intended to detect money laundering, not protect customers—and imposed by the underlying contract, they did not rely on nor bear a significant relationship to the underlying contract sufficient to trigger application of the arbitration clause. Because the claims failed to satisfy the lower burden of broader scope standard, the court held they would likewise not be able to satisfy the higher burden required for the narrow scope analysis.

Second, the court reached a similar conclusion under California’s inquiry on whether equitable estoppel requires compulsion of an arbitration agreement for claims that are “dependent upon, or inextricably intertwined with” the underlying contract obligations. Even if claims are related to the contract, California does not compel arbitration unless a complaint “relies” on the agreement to establish its cause(s) of action. Here, the court found the class representative did not seek to enforce any terms or obligations of the underlying user agreements, but rather sought to enforce duties and obligations imposed by federal statutes and regulations and state common law. Therefore, because plaintiffs’ claims, if viable, would be so viable without any reference to the user agreements, the complaint did not rely on them and plaintiffs were not estopped from avoiding the arbitration clauses.

Leidel v. Coinbase, Inc., No. 17-12728 (11th Cir. Apr. 23, 2018).