ARBITRATION
Coinbase v. Suski
Date: May 23, 2024
Issue: Whether a court or arbitrator must decide whether a subsequent contract supersedes an earlier arbitration agreement that includes a delegation clause.
Case Summary: In a unanimous decision written by Justice Ketanji Brown Jackson, the U.S. Supreme Court ruled when parties agree to two contracts — one sending arbitrability disputes to arbitration and the other sending the disputes to the courts—a court, not arbitrator, must decide which contract governs.
In June 2021, Coinbase, an online cryptocurrency exchange, started a Dogecoin sweepstakes. David Suski and three users (collectively Suski) entered into two agreements to join the sweepstakes. The first agreement was a Coinbase user agreement containing both an arbitration agreement and a broad delegation clause providing that the arbitrator resolves all disputes on arbitrability. The second agreement, the official sweepstakes rules, contained a forum-selection clause not mentioning the prior arbitration agreement or delegation clause. The rules stipulated California courts would have exclusive jurisdiction for related disputes.
Suski sued Coinbase alleging it violated California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies. According to Suski, Coinbase intentionally misled users to believe they had to buy or sell at least $100 in cryptocurrency to enter, even though no monetary transaction was required. Suski also alleged Coinbase’s sweepstakes was an unlawful lottery in violation of California law.
Coinbase sought to compel arbitration, but the district court denied its motion. The district court interpreted the contractual documents to conclude the Sweepstakes’ official rules trumped the Coinbase User Agreement’s arbitration clause. On appeal, the Ninth Circuit affirmed, concluding the California court system should resolve the dispute rather than an arbitrator. Coinbase petitioned the U.S. Supreme Court to review.
The American Bankers Association filed a coalition amicus brief urging the U.S. Supreme Court to rule the delegation clause requires an arbitrator to decide whether a subsequent contract modifies the scope of the original arbitration agreement. ABA claimed the effect of a subsequent contract on a prior arbitration agreement remaining in effect is a question of the arbitration agreement’s scope, not contract formation; and the Ninth Circuit should have enforced the delegation clause even if the issue involves contract formation.
In affirming the Ninth Circuit, the Supreme Court concluded that courts, not arbitrators, decide whether a subsequent contract supersedes an earlier arbitration agreement that includes a delegation clause. The Court explained courts cannot assume parties have agreed to arbitrate absent clear and unmistakable evidence. Before referring disputes to arbitrators, the Court reasoned courts must determine what the parties had agreed to, including whether the parties had agreed to arbitrate arbitrability for sweepstakes-related disputes.
The Court rejected several of Coinbase’s arguments. First, the Court rejected the argument the severability principle alters the analysis. Under the severability principle, a party seeking to avoid arbitration must directly challenge the arbitration or delegation clause, rather than the contract as a whole. Because Coinbase’s challenge applied “equally” to the whole contract, the severability principle was satisfied, according to the Court. Second, the Court declined to address whether the Ninth Circuit wrongly held that the Official Rules’ forum selection clause superseded the first contract’s delegation provision as outside the scope of the question presented. Finally, the Court rejected the idea that its decision would invite “chaos” by inviting challenges to delegation clauses.
In concurrence, Justice Neil Gorsuch noted the Court does not endorse the reasoning in the Ninth Circuit’s opinion or its state contract law analysis. Instead, the Court reaffirmed well-established arbitration principles and declared a court should determine what is subject to arbitration.
Bottom Line: The Court’s ruling was narrow: It does not undermine the enforceability of delegation clauses where the parties have agreed to a single contract.
Documents: Brief
