On May 23, the U.S. Supreme Court issued its decision in Coinbase, Inc. v. Suski et al., unanimously affirming the Ninth Circuit’s decision holding that when parties have agreed to two contracts — one sending arbitrability disputes to arbitration, and the other sending arbitrability disputes to the courts — a court must decide which contract governs. The decision teaches a cautionary lesson that parties with multiple contracts between them must keep issues of arbitrability consistent between the contracts.
Coinbase, a cryptocurrency exchange platform, was involved in a dispute with its users who participated in a promotional sweepstakes. The conflict arose from two separate contracts:
- The Coinbase User Agreement that users agreed to when they created their accounts. The User Agreement contained an arbitration provision stating that an arbitrator must decide all disputes, including whether a disagreement is arbitrable.
- The Official Rules for the sweepstakes for a chance to win the cryptocurrency Dogecoin. The Official Rules contained a forum selection clause providing that California courts shall have sole jurisdiction over any controversies regarding the promotion.
Thus, the sweepstakes entrants had two contracts with Coinbase — the User Agreement which sent disputes about arbitrability to arbitration, and the Official Rules which delegated disputes to the California courts. When Coinbase’s users filed a class action in the U.S. District Court for the Northern District of California alleging that the sweepstakes violated various California laws, Coinbase moved to compel arbitration based on the User Agreement’s arbitration provision. The district court held, and subsequently the Ninth Circuit affirmed, that the Official Rules’ forum selection clause controlled the dispute and the case was not subject to arbitration.
Justice Jackson, delivering the opinion for the unanimous Court, reasoned that arbitration is a matter of contract and consent, and disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes. “Here, then, before either the delegation provision or the forum selection clause can be enforced, a court needs to decide what the parties have agreed to — i.e., which contract controls.” Justice Jackson rejected Coinbase’s argument that the Court’s approach “will invite chaos by facilitating challenges to delegation clauses.” She noted that in cases where parties agree to only one contract, and that contract contains an arbitration clause with a delegation provisions, the courts are bound to send issues regarding arbitrability to arbitration. “But, where, as here, parties have agreed to two contracts — one sending arbitrability disputes to arbitration, and the other either explicitly or implicitly sending arbitrability disputes to the courts — a court must decide which contract governs.”
Justice Gorsuch submitted a concurring opinion emphasizing that neither the Ninth Circuit’s reasoning nor state contract law analysis was endorsed by the Supreme Court, but rather the Court reaffirmed the primacy of the parties’ agreements in arbitration matters.
Our Take
This decision underscores the importance of clear and consistent contract drafting, particularly in relation to dispute resolution mechanisms. Businesses should be aware that when multiple agreements govern the relationship between the parties and contain conflicting provisions relating to arbitrability, courts will need to determine which contract governs the dispute.
