This Time, the Court Decides: SCOTUS, Clarifying Delegation, Rejects Coinbase Mandatory Arbitration

CPR Speaks,

By Russ Bleemer & Lee Williams

In today's "Who decides?" case on sending a matter to arbitration, the U.S. Supreme Court unanimously held that where there are two conflicting but related contracts, a court will make the decision on whether arbitration will hear the dispute.

In a unanimous 9-0 opinion by Justice Ketanji Brown Jackson in Coinbase Inc. v. Suski, No. 23-2, the Court affirmed the Ninth U.S. Circuit Court of Appeals decision in the case, holding, "[w]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 Neil Gorsuch filed a concurrence focusing, like the main opinion, on contract principles. 

The decision closes the docket on the Court's 2023-2024 arbitration cases.  It decided Smith v. SpizzirriNo. 22-1218, just a week ago, and previously, Bissonnette v. LePage Bakeries Park St. LLCNo. 23-51, on April 12.  Details on the former case, which that held that Federal Arbitration Act Section 3 compels a court to stay litigation proceedings and not dismiss a case while arbitration is pending, are available on CPR Speaks on May 16 here. Details on Bissonnette, which  held that a transportation worker need not work in the transportation industry to be exempt from arbitration under the provision in Federal Arbitration Act §1, are available on CPR Speaks here.

Coinbase examines the extent of a delegation clause: those contractual provisions that send a matter to arbitration, rather than a court--the “Who decides?” question. The variation here was that two contracts were involved—a face-off between two consumer contracts that Coinbase issued. The first contract is Coinbase's customer agreement, and the second is a set of sweepstakes rules that contained, according to the opinion, "a forum selection clause, providing that all disputes related to that contract must be decided in California courts." 

The mandatory arbitration agreement appears in the initial agreement but not in the contest rules.

The specific issue before the Court, restated in today's decision, was “the question of who—a judge or an arbitrator—should decide whether a subsequent contract supersedes an earlier arbitration agreement that contains a delegation clause.”

Today's decision clarifies the limits of the delegation clause, a concept most prominently addressed by nation's top Court in Rent-A-Center, West, Inc. v. Jackson, 561 U. S. 63, 70, and more recently, in Henry Schein, Inc. v. Archer & White Sales Inc., 586 U. S. 63, 65 (2019).

Those limits have been a challenge to practitioners, and have bred litigation that the Court today says won't be a consequence of its Coinbase ruling.

In today's opinion, Justice Jackson writes that the Court has addressed "three layers of arbitration disputes: (1) merits, (2) arbitrability, and (3) who decides arbitrability," but Coinbase adds a fourth layer, on multiple agreements with conflicting arbitration delegations.

First, she notes unsurprisingly that traditional contract principles govern the analysis. Applying those principles, Jackson writes,

When we home in [sic] on the conflict between the delegation clause in the first contract and forum selection clause in the second, the question is whether the parties agreed to send the given dispute to arbitration—and, per usual, that question must be answered by a court.

She continues, "Coinbase seems to concede this point."

Then, the opinion addresses the arguments that the San Francisco-based cryptocurrency platform offers to counter sending the case to court for an arbitrability decision rather than an arbitrator.

All were rejected.

First, the opinion strengthens the limits of the application of the severability principle.  Coinbase claimed that the Ninth Circuit should have isolated the customer agreement's delegation provision and considered only arguments specific to that provision, not the sweepstakes forum clause provision.

The opinion defines the concept: "Under the severability principle, 'an arbitration [or delegation] provision is severable from the remainder of the contract,' and 'unless the challenge is to the arbitration [or delegation] clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.' Buckeye Check Cashing Inc. v. Cardegna, 546 U. S. 440, 445–446 (2006)."

In light of the definition and "basic principles of contract and consent," the Court rejected Coinbase's isolation argument and re-defined severability in light of the two contracts:

The severability principle establishes that a party seeking to avoid arbitration must directly challenge the arbitration or delegation clause, not just the contract as a whole. But this rule does not require that a party challenge only the arbitration or delegation provision. Rather, where a challenge applies “equally” to the whole contract and to an arbitration or delegation provision, a court must address that challenge.

Second, the Court declined to consider a Coinbase challenge to the delegation provision under California law. "We took this case to decide whether, under the [Federal Arbitration Act], a court or an arbitrator decides which of the two contractual provisions controls," wrote Jackson, adding, "We decline to consider auxiliary questions."

Third, the unanimous Court rejects Coinbase's "chaos" claim—that rejecting its view of delegation clauses will result in more challenges. The opinion states its holding directly:

In cases where parties have agreed to only one contract, and that contract contains an arbitration clause with a delegation provision, then, absent a successful challenge to the delegation provision, courts must send all arbitrability disputes 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.

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Justice Neil Gorsuch reiterated the decision in his words in a two-page concurrence, noting "the Court simply reaffirms well-established principles about the primacy of the parties’ agreements when it comes to arbitration, . . . and the Ninth Circuit’s 'bottom-line conclusion' that a court had to decide whether and to what extent the parties here reached 'an agreement' to have an arbitrator resolve the question of arbitrability." (Internal citations omitted.)

But Gorsuch also had words that alternative dispute resolution clause drafters will find notable, because they suggest an ability to broaden the scope of already-expansive arbitration provisions to include downstream contracts of a wide variety. "[S]ometimes, the parties’ agreements may be best read as vesting that power in an arbitrator," writes Gorsuch, continuing, "Just imagine a master contract providing that 'all disputes arising out of or related to this or future agreements between the parties, including questions concerning whether a dispute should be routed to arbitration, shall be decided by an arbitrator.' Absent some later amendment, a provision like that would seem to require a court to step aside."

Today's decision can be found here

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The oral argument seemed to point in a slightly different direction to a remand, though the ultimate decision will likely produce the same result. The Court showed frustration during the parties’ arguments on Feb. 28, particularly when the respondents’ attorney, David J. Harris Jr., argued the case on behalf of the original plaintiffs, who sought to avoid arbitration. 

Petitioner Coinbase maintained that the case should be remanded with direction to the lower court, and respondents’ attorney Harris seemingly mistakenly backed his adversaries at the oral argument. He asserted that despite the Ninth Circuit deciding in his clients’ favor, the appeals court failed to address certain issues in their decision.

In response, Justice Sonia Sotomayor said, “I think you just gave away your case.”

Even before Harris’s blunder, the Court leaned toward remanding to the lower court. During the argument of petitioners’ attorney Jessica Ellsworth, a partner in the Washington, D.C., office of Hogan Lovells, Justice Brett Kavanaugh stated that there seemed to be agreement between the parties based on the reply brief which indicated both parties thought the Ninth Circuit analysis was wrong.  Therefore, suggested Kavanaugh, the case should be remanded. 

Kavanaugh asked, “If we do that, are we done?” Kavanaugh’s question was followed by laughter among the justices, who seemed to acknowledge that spending years in courts arguing who should decide whether the matter should be arbitrated was counter-productive. For more details on the oral arguments, see Russ Bleemer & Lee Williams, “SCOTUS Frustration: How to Move the Coinbase Arbitrability Case Forward,” CPR Speaks (February 28, 2024) (available here.)

The Court’s hesitancy in hearing Coinbase Inc. v. Suski was first indicated by its decision to dismiss the case last term. Suski was one of two consolidated Coinbase cases in which the Court issued an opinion last term on litigation stays for appeals on arbitrability determinations. The Court, however, determined that Suski’s claim was improvidently granted against Coinbase in its June 2023 decision, on a related point, in Coinbase v. Bielski, 143 S.Ct. 1915 (June 23, 2023) (available here). For details on the first Coinbase decision, 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).

Less than a year later, Suski was back at the Supreme Court.

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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 has completed his a second year at the Howard University School of Law in Washington, D.C.; he was a full-year CPR intern as part of CPR’s work with Howard Law’s ADR Program covering the Supreme Court, and attended the Coinbase v. Suski argument for CPR Speaks, linked above.