Recent decisions by the U.S. Supreme Court in Smith v. Spizzirri, 601 U.S. 472 (2024) and Coinbase, Inc. v. Suski, 144 S. Ct. 1186 (2024) provide important guidance for companies utilizing arbitration clauses in their contracts. These rulings clarify the application of arbitration clauses and underscore the necessity of precise contract drafting.

Smith v. Spizzirri

In Smith v. Spizzirri, the Supreme Court addressed whether a court must stay proceedings when an arbitration agreement is invoked and one of the parties requests a stay, or if the court can dismiss the case entirely. The petitioners, delivery drivers for an on-demand service, filed suit against their employer, alleging violations of federal and state employment laws. The employer moved to compel arbitration and dismiss the suit, but the employees argued that the case should be stayed pending any arbitration proceedings. The District Court agreed to compel the case to arbitration and dismissed the case, noting that prior precedent allowed the court to dismiss the action if it determined that all claims were subject to arbitration. The decision was affirmed by the Ninth Circuit.

The Supreme Court unanimously reversed, holding that under Section 3 of the Federal Arbitration Act (FAA), a court is required to stay proceedings pending arbitration if requested by a party. If a request for a stay has been made, the court does not have the discretion to then dismiss the case. The Court emphasized that the statutory text, structure, and purpose of the FAA necessitate a stay to preserve the right to arbitration and ensure judicial efficiency. The ruling also highlights the supervisory role of courts in facilitating arbitration, such as by appointing an arbitrator, enforcing subpoenas and facilitating the recovery of an award issued in arbitration.

In response, some district courts have already weighed in following the decision. An open question remains whether district courts may dismiss the litigation if a stay is not requested by the party seeking to compel arbitration or if a stay is the only option available if seeking to compel arbitration.

Coinbase, Inc. v. Suski

In Coinbase, Inc. v. Suski, the Supreme Court tackled the issue of whether a court or an arbitrator must resolve conflicts between two agreements between the same parties that bear on their agreement to arbitrate disputes. Coinbase’s User Agreement contained an arbitration clause with a delegation provision, which provided that an arbitrator must decide all disputes under the contract, including whether a given disagreement is arbitrable. The Official Rules for a promotional sweepstakes offered by the company, however, included a forum selection clause specifying that all disputes relating to the contract would be resolved in California courts.

The respondents, users of Coinbase, filed a class action alleging violations of California laws related to the sweepstakes. Coinbase moved to compel arbitration based on the User Agreement. The District Court, and subsequently the Ninth Circuit, ruled in favor of the plaintiffs and enforced the forum selection clause, denying the motion to compel arbitration.

The Supreme Court affirmed the Ninth Circuit’s decision, stating that when multiple agreements with conflicting dispute resolution clauses exist, it is for the courts to determine which contract governs the dispute. The Court clarified that arbitration is a matter of consent, and without a clear agreement to arbitrate arbitrability, the court must resolve the contractual conflict. This decision underscores the importance of clear and consistent arbitration provisions across all contracts to avoid judicial intervention.

Implications for Companies

1. Drafting Arbitration Clauses: Ensure arbitration clauses are clearly defined and consistent across all contracts. Conflicting clauses in different agreements can lead to judicial resolution, potentially bypassing the intended arbitration process.
2. Avoiding Forum Selection Conflicts: Be cautious of incorporating forum selection clauses that could conflict with existing arbitration agreements. Any ambiguity can result in litigation to determine the applicable dispute resolution method.
3. Review Existing Contracts: Conduct a thorough review of all existing contracts to ensure arbitration clauses are uniform and unambiguous. Address any inconsistencies that might lead to conflicting interpretations.

Conclusion

The Supreme Court’s decisions in Smith v. Spizzirri and Coinbase, Inc. v. Suski provide important clarity on the enforcement of arbitration clauses, emphasizing the need for precise contract language and consistent arbitration agreements.