California appeals court says lender cannot move bitcoin loan suit to Delaware

Courts State Issues Digital Assets Cryptocurrency Fintech Appellate California Delaware

On June 14, the California Court of Appeal for the Second Appellate District reversed a trial court’s decision staying a suit against a lender and its loan payment processor (collectively, “defendants”) and enforcing a Delaware forum selection clause. The appeals court held that the plaintiff borrower’s unwaivable right to a jury trial under California law could be violated if the case proceeded in Delaware. According to the opinion, the plaintiff obtained $2.275 million in loans secured by bitcoin from the lender (a Delaware LLC that is licensed and regulated by California’s Department of Financial Protection and Innovation). When the value of bitcoin dropped, the lender sold the plaintiff’s bitcoin under the terms of the governing loan agreements. The plaintiff sued, “seeking, among other things, damages, return of his bitcoin, and cancellation of the loan agreements.” The defendants moved to stay the case because the Delaware forum selection clause required the case to be litigated in Delaware. The plaintiff countered that transferring the case to Delaware would “substantially diminish” his unwaivable rights under California law. The trial court eventually concluded that transferring the case to Delaware would not diminish the plaintiff’s rights and granted the stay pending litigation in Delaware. The trial court also stayed a second suit brought by the plaintiff alleging violations of California’s Unfair Competition Law and False Advertising Law, holding that the second suit involved the same primary rights as the first suit.

In reviewing the consolidated cases, the appeals court determined, among other things, that the Delaware forum selection clause in this case contains a predispute jury waiver. “Because California has a fundamental policy against such a waiver, Defendants carry the burden of proving that Delaware would not diminish this important right,” the appeals court wrote, adding that under Delaware law “contractual provisions that waive the contracting parties’ right to trial by jury have been upheld, and relevant case law provides insufficient assurance that Delaware courts will apply California’s important public policy to this dispute.” Additionally, the appeals court concluded that the defendants’ proposed “offer to stipulate that the Delaware court should apply California law” provides “little assurance that a Delaware court would enforce such a stipulation under the facts present here.”