Coinbase v. Suski

ARBITRATION
Coinbase v. Suski
Date: Dec. 22, 2023

Issue: Where parties enter into an arbitration agreement with a delegation clause, should an arbitrator or a court decide whether an arbitration agreement is narrowed by a later contract that is silent as to arbitration and delegation?

Case Summary:  ABA and other trade groups (Amici) filed an amicus brief urging the U.S. Supreme Court to rule a delegation clause requires arbitrator to decide whether a subsequent contract modifies the scope of original arbitration agreement.

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 that contained both an arbitration agreement and a broad delegation clause providing that all disputes on arbitrability would be resolved by the arbitrator. The second agreement, the official sweepstakes rules, contained a forum-selection clause that did not mention the prior arbitration agreement or delegation clause. The rules stipulated that California courts would have exclusive jurisdiction for related disputes. Suski sued alleging that Coinbase 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. Further, Suski alleged that 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 court interpreted the contractual documents to conclude the Sweepstakes’ official rules with their forum-selection clause trumped the Coinbase User Agreement’s arbitration clause. On appeal, the Ninth Circuit affirmed, concluding the dispute should be resolved within the California court system rather than through arbitration. Coinbase petitioned the U.S. Supreme Court to review.

Amici filed its amicus brief supporting Coinbase. Amici argued the effect of a subsequent contract on a prior arbitration agreement that remains in effect is a question of the arbitration agreement’s scope, not contract formation, for four reasons. First, Amici asserted the Federal Arbitration Act (FAA) requires that valid arbitration agreements be enforced as written. Section 3 of the FAA provides that if the parties validly agreed to arbitrate, the court shall stay any litigation pending the completion of an arbitration proceeding under the agreement. Section 4 provides that a party that proves the opposing party’s failure to arbitrate a dispute “under a written agreement for arbitration” is entitled to an “order directing that such arbitration proceed in the manner provided for in such agreement.” Therefore, Amici emphasized when the dispute falls within the scope specified in the arbitration agreement, the court must issue an order compelling arbitration.

Second, Amici asserted whether a subsequent contract narrows the coverage of a prior arbitration agreement is a question of the arbitration agreement’s scope. Amici emphasized there is no dispute that Suski agreed to the Coinbase User Agreement, including its arbitration agreement. There is also no dispute the arbitration agreement remains in effect. In effect, Amici contended “so long as the arbitration agreement’s very existence is not challenged, questions about its reach or interaction with other agreements involve the arbitration agreement’s scope, not its formation.”

Third, because the parties agreed to delegate questions of arbitrability to an arbitrator, Amici asserted the arbitrator must decide the effect of the subsequent contract. Amici emphasized the FAA requires courts to “interpret the contract as written.” Therefore, under the current delegation clause, it was for the arbitrator to decide whether the sweepstakes rules narrowed the scope of the arbitration agreement to exclude the underlying claims asserted by Suski.

Fourth, Amici asserted that failing to properly distinguish between contract formation and scope issues will create widespread uncertainty, undermining Congress’ purpose in enacting the FAA. Amici highlighted that lengthy proceedings threaten to discourage the use of arbitration by depriving the parties of the informality and expediency they sought to achieve by agreeing to arbitrate a broad range of disputes. According to Amici, this includes any threshold disputes over arbitrability.

Amici also argued the court of appeals should have enforced the delegation clause even if the issue involves contract formation. Even if the court were to determine the question is one of contract formation—and the sweepstakes rules supersede the arbitration agreement and delegation clauses in the Coinbase User Agreement—Amici explained the court erred in ruling the forum-selection clause could silence the delegation clause. In deciding whether a valid delegation provision exists, a court must apply the “clear and unmistakable” standard from First Options of Chicago v. Kaplan. Under this standard, parties must provide clear and unmistakable evidence that they agreed to arbitrate. Amici explained there was no dispute that the delegation clause was formed, and the clear and unmistakable standard was satisfied. For these reasons, Amici concluded the delegation clause cannot be undone by “mere silence or ambiguity in a subsequent contract.”

Bottom Line: Respondents brief is due Jan. 17, 2024.

Download the amicus brief to read the full text.