District Court sends cryptocurrency hack suit to arbitration

Courts Digital Assets State Issues Cryptocurrency Arbitration New York Federal Communications Act

On August 24, the U.S. District Court for the Eastern District of New York granted a motion to compel arbitration in an action claiming that a mobile communications company’s failure to protect the personal information of a cryptocurrency company founder allowed a hacker to steal $8.7 million in cryptocurrency. The cryptocurrency company and its founder sued the defendant citing violations of the Federal Communications Act and the New York Consumer Protection Act, along with numerous negligence claims. Plaintiff alleged that due to lack of safeguards, a hacker conducted an unauthorized “SIM swap” and used the plaintiff’s personal information to access his cryptocurrency wallets and exchange accounts. Plaintiff further claimed that even though it reported the SIM swap to the defendant, “[m]ore attacks continued to succeed over the following years.” The defendant moved to compel arbitration claiming that the plaintiff electronically signed receipts agreeing to terms and conditions which require the arbitration of disputes unless a customer opts-out. The plaintiff countered that “he was not shown the full terms and conditions to his service; that he could not conduct a ‘complete review and inspection’ of the digital receipt because of the screen’s small size, resolution, and inadequate backlighting; that the displayed receipt did not permit hyperlinked review of the full terms; that the display did not affirmatively seek his consent to arbitration by requiring he press a button or check a box; that the full terms were not separately provided in another form; and that his consent was not otherwise confirmed by [defendant] personnel.”

The court found that had the plaintiff “simply thought he was signing a receipt for equipment purchases–and had no idea that any terms and conditions were displayed on the digital device he signed–the court might have concluded that there remained a question of fact suitable for resolution by a jury.” However, the court found that the plaintiff “never claimed that he was unaware that his transactions with [defendant] carried terms and conditions” nor did he allege that he never received “a notice indicating the existence of the terms” even though the court specifically asked the parties to establish these facts in limited discovery. Accordingly, the court ruled that the plaintiff was on notice of defendant’s terms and agreed to them, thus compelling arbitration.