SCOTUS Frustration: How to Move the Coinbase Arbitrability Case Forward

CPR Speaks,

How much arbitration can an arbitration delegation clause provide?

The answer may be in a U.S. Supreme Court remand for another look at the case argued Wednesday—a choice to which some members of the Court appeared to be reconciling themselves to in a concise and occasionally pointed oral argument. 

The extent of the reach of an arbitration agreement and its delegation clause was the Court's focus in the Feb. 28 U.S. Supreme Court arguments in Coinbase Inc. v. Suski, No. 23-2. The case addressed the question of “where parties enter into an arbitration agreement with a delegation clause, should an arbitrator or a court decide whether that arbitration agreement applies to a later contract that is silent as to arbitration and delegation?”

The litigants had hoped that the justices would decide whether an arbitration delegation clause in an initial consumer contract would send participants under Coinbase’s subsequent sweepstakes and official rules to an arbitrator to decide how the case is heard or, in the case of the respondents, if the arbitrability decision could stay in court under the appeals court decision in the matter.

But the path is unclear. The Court discussed developing the extent of the delegation, as well as the respondents’ argument on whether there was a scope-of-arbitration question, or an inquiry into the formation of an arbitration obligation under the second contract. The initial consumer contract contains the arbitration and delegation provisions, and the second contract--the Coinbase sweepstakes official rules--contains a choice-of-forum clause. 

Ultimately, the takeaway was a Court frustrated with the detailed litigation on a seemingly eternal arbitration question, “Who decides?”—that is, whether an arbitrator or a court would decide which would address disputes under the second agreement on the sweepstakes.

It’s the hyper-technical yet stark arbitrability question: Will the arbitrator or court decide whether an arbitrator or court decides?

“I struggle with both sides to see why we’re here,” Justice Neil Gorsuch told the respondent-consumers’ attorney David Harris Jr. of San Diego, adding, “You could have had an answer from an arbitrator because I think your argument is quite strong.”

Gorsuch was reprising an inquiry he made in the opening argument of Coinbase’s attorney, Jessica Ellsworth, a partner in the Washington, D.C., office of Hogan Lovells, who he also told that the sweepstakes official rules point to a court decision on disputes.

Justices Sonia Sotomayor and Brett Kavanaugh suggested that the Court remand the case for a further inquiry into the delegation clause, even while the justices showed concern about the litigation gamesmanship, with the lower courts sending the sweepstakes dispute to an apparent class-action matter, and Coinbase seeking to get the case in front of an arbitrator.

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Here is a link to the audio version of today's oral argumentAnd here is a link to the transcript. Last weekend, CPR Speaks examined the three amicus briefs supporting the respondent employees here. A week ago, CPR Speaks analyzed petitioner Coinbase’s three friend-of-the-Court briefs here.

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Following attorney Jessica Ellsworth's opening statement on behalf of San Francisco-based cryptocurrency platform Coinbase, Justice Clarence Thomas kicked off the unusually short 42-minute argument, questioning her about the confusion underlying this case--the face-off between the customer agreement and the sweepstakes’ official rules. He asked, “So what is the source of the disagreement here? Doesn't it come from the rules?” 

Ellsworth, a partner in the Washington, D.C., office of Hogan Lovells, explained that the source was a forum-selection clause in the official rules that the respondents interpreted as being separate from the delegation clause in the initial arbitration agreement.

Thomas then asked about the sweepstakes rules contract drafting, wondering why it wasn’t clear on whether it was covered by the arbitration agreement. He asked whether it “simply” should have had an express arbitration provision or addressed the issue “by referring back to and incorporating the user agreement.” 

Ellsworth responded that the question about the drafting should be reserved for an arbitrator, “but the threshold question is whether the confusion . . . has anything to do with the ‘Who decides?’  issue.”

Thomas disagreed with Ellsworth, claiming that “it goes a little deeper because you can also say, ‘Is there actually an arbitration agreement that comes out of [the] rules?’” Ellsworth answered that there is no arbitration agreement in the rules.

She claimed that the respondents were attempting to create confusion with the sweepstakes contract, but instead created a “garden-variety arbitrability question” that does not speak to the threshold question of whether a court or the arbitrator has standing in the case.

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During her argument, Jessica Ellsworth recommended that the Court make three distinctions before remanding the case to the Ninth Circuit. First, she requested that the lower court apply the severability principle of the Federal Arbitration Act. The severability principle dictates that a court can only entertain challenges directly to the validity or enforceability of the delegation clause itself.  Other questions would be delegated by the clause to an arbitrator.

She wanted the Court to assert that severability applies where there are multiple contracts, which she said was common in consumer cases like Coinbase.

Next, Ellsworth wanted the Supreme Court to explain to the Ninth Circuit “that delegation clauses can and regularly do direct an arbitrator to resolve disputes about whether an arbitration agreement exists and whether it covers a particular dispute”--referencing her client Coinbase's contention that the scope of the delegation clause and arbitration were at issue, not the existence of the obligation to arbitrate or the existence of the need to send the arbitration question to an arbitrator. 

In her third point, Ellsworth suggested that the Court should remand the case because “a court cannot refuse to enforce a delegation clause based on the court's view that a later contract changes the scope of what disputes are arbitrable.”

At this point, Justice Sotomayor had heard enough. Before Ellsworth could finish her sentence on the third point, Sotomayor interjected with disapproval of the attorney’s suggestions. Sotomayor stated, “These are huge changes. You are now creating a whole set of federal rules on what constitutes a superseding agreement or not.  . . . [W]e shouldn't be creating federal rules for the state to follow or not follow in interpreting contracts.”

Ellsworth responded that she was simply asking for the Supreme Court to make sure that the severability principle be applied in the lower court because it has been “applied consistently”  by the Supreme Court.

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David Harris Jr. also hit obstacles in his oral argument, again beginning with Justice Clarence Thomas. Following Harris's opening statement, Thomas asked the attorney for the Coinbase customers', the respondents in the case, why Harris believed that a second contract--the sweepstakes official rules--would not go to the scope of the arbitration agreement. 

Harris replied, “[I]t goes to two scopes. It goes to the scope of the agreement to arbitrate the merits of the dispute, and our position that we've tried to brief very heavily is that it goes to the scope of the agreement to delegate this arbitrability dispute to the arbitrator.”

He cited Granite Rock Co. v. Int’l Bd. of Teamsters, 561 U.S. 287, 301 (2010), a Court case that he said held that “consent to arbitrate is dispute-specific.” Harris said that the respondents contend that “if that's true in the context of an arbitration agreement, it also has to be true in the context of a delegation agreement.”

Immediately, Justice Gorsuch pressed on the scope issue.  The arbitration provision in the customer agreement “says it applies to everything, all disputes about Coinbase services, right? The answer has to be yes.” Harris agreed, trying to clarify that the agreement applies to everything in its "isolated" terms, but not to the sweepstakes agreement in this context. 

But Gorsuch jumped back in. “The only question is ‘Does the second contract make this different than it being in a single contract?’” said Gorsuch, “And I struggle to see why that would be the case.”

After Justice Kavanaugh pressed Harris on remanding the case for a full ruling on the application of the delegation clause, Harris said that the Ninth Circuit didn't decide if the official sweepstakes rules supplant the original arbitration agreement's delegation clause, in response to Justice Elena Kagan. He said, “They haven't addressed it under state law. They haven't addressed it under federal law.”

In response to Harris’s assertion, Justice Sotomayor appeared perplexed and said, “I think you just gave away your case.” She repeated the statement, then explained that Coinbase wanted to vacate and remand the case because the lower court did not address the delegation clause and whether the sweepstakes agreement superseded the delegation clause.

With Harris's assertion that the Ninth Circuit did not address delegation, Sotomayor suggested that the respondent's attorney backed the petitioner’s argument. 

Harris countered that the lower courts' determination was simply that the delegation clause didn’t cover “this particular arbitrability dispute. And so they said it’s not delegated.”

“I'm struggling,” said Justice Neil Gorsuch. “I think you've just conceded over and over again that the first agreement says those questions go to the arbitrator and it's broad in scope and it covers everything, all relationships with Coinbase. So you want us to vacate and remand for more proceedings in the Ninth Circuit on whether that first agreement modifies the second, rather than just going to get an answer from the arbitrator?”

Harris replied that he was seeking affirmance, and didn’t want any chance the case would return to an arbitrator. 

Justices Gorsuch and Justice Ketanji Brown Jackson asked pointed questions about the value and purpose of the case. Justice Kavanaugh followed up:  “It's a class action, putative, right?” Harris replied, “Putative.” Kavanaugh quickly added, “Yeah. That's--that's the answer, isn't it?”

“Yes, Your Honor,” replied David Harris, “That's essentially the answer.”

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The Suski case returned to the Supreme Court for the second consecutive term. The case was one of two consolidated cases in which the Court issued an opinion last term on litigation stays for appeals on arbitrability determinations.  But original plaintiff David Suski’s claim was dismissed as improvidently granted against Coinbase in the June 2023 decision in Coinbase v. Bielski, 143 S.Ct. 1915 (June 23, 2023) (available here). See Russ Bleemer & Cenadra Gopala-Foster, “Supreme Court: While a Denial of Arbitrability Is Appealed, a Stay of Litigation Is Mandatory,” CPR Speaks (June 23, 2023) (available here). 

In the current Suski case before the Court today, the Ninth U.S. Circuit Court of Appeals affirmed the district court’s holding and denied Coinbase’s request to compel arbitration. Suski v. Coinbase, Inc., 55 F.4th 1227, 1228 (9th Cir. 2022) (available here). In the case, the plaintiffs filed suit under California's False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase and Marden-Kane Inc., a company hired by Coinbase, a cryptocurrency exchange, to design, market, and execute a sweepstakes that the plaintiffs claimed were deceptive practices. Id.

When creating their accounts, the plaintiffs signed the Coinbase User Agreement, which contains an arbitration provision. Later, they opted into a second contract, the Coinbase Sweepstakes’ Official Rules, which includes a forum-selection clause providing that California courts have exclusive jurisdiction over any controversies regarding the sweepstakes. Id. at 1228–29.

Coinbase filed a motion to compel arbitration, which the district court denied. The appeals court noted, “The district court concluded that a delegation clause in the Coinbase User Agreement did not delegate to the arbitrator the issue of which contract governed the dispute.” Id. at 1229.

The Ninth Circuit affirmed the district court and made distinctions between the arbitration delegation clause in Coinbase’s User Agreement and the forum selection clause in the Sweepstakes Official Rules. The delegation clause stated that an “arbitrator shall decide ‘disputes arising out of or related to the interpretation or application of the Arbitration Agreement.’” Coinbase argued that the issue of any superseding effect of the Sweepstakes' Official Rules concerns the scope of the arbitration clause and therefore falls within the User Agreement's delegation clause. Id.

The Ninth Circuit appellate panel, however, accepted Suski’s argument that the existence of the contractual duty to arbitrate was in question, not the scope of arbitration. Id. at 1230. Also, the appeals court made the distinctions between Coinbase’s delegation clause, which is in a separate contract from the forum selection clause, and the cases cited by Coinbase that had delegation clauses in the same contract as their forum selection clauses. Id.

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The Court is expected is issue an opinion in Coinbase v. Suski before the term concludes at the end of June. On April 22, the Court will hear Smith v. Spizzirri, No. 22-1218, the third arbitration case of the 2023-2024 term. For more on the April case, see Lee Williams, "Stay or Dismiss? The Supreme Court Grants Cert on Its Third Arbitration Case This Term," CPR Speaks (Jan. 15). For more on last week's Supreme Court arbitration argument in  Bissonnette v. LePage Bakeries Park St. LLCNo. 23-51, see Lee Williams, "Tuesday's Supreme Court Federal Arbitration Act Exemption Arguments," CPR Speaks (Feb. 20).

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Russ Bleemer is editor of the CPR Institute’s Alternatives to the High Cost of Litigation. [The CPR Institute also hosts this blog.] Lee Williams, a second-year student at the Howard University School of Law in Washington, D.C., is a full-year CPR intern as part of CPR’s consortium program with Howard Law’s ADR program, and attended the Coinbase v. Suski argument for CPR Speaks.