Who Decides? Coinbase Returns to the Supreme Court to Examine Arbitration Delegation
Who decides whether a case is arbitrated? It’s a longstanding question in alternative dispute resolution practice. And now it has returned to the U.S. Supreme Court.
On Friday, Nov. 3, the Court granted the petition for certiorari for Coinbase Inc. v. Suski, No. 23-2 (the Court’s docket is available at https://bit.ly/3StPZwL). The case is expected to decide the issue of whether, where parties enter into an arbitration agreement with a delegation clause, an arbitrator or a court decides whether that arbitration agreement is narrowed by a later contract that is silent as to arbitration and delegation.
This is the second arbitration case that the Court has agreed to hear this term, along with Bissonnette v. LePage Bakeries Park St. LLC, No. 23-51. See Jonathan Baccay, “The Supreme Court Will Address a Circuit Split on a Federal Arbitration Act Exemption,” CPR Speaks (Sept. 29) (available here).
The Suski case is back at the Supreme Court for the second consecutive term. The case was one of two consolidated cases in which the Court issued an opinion last June. 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).
Now, just four months later, Suski and Coinbase have been returned to the docket as a result of the Court’s Oct. 27 conference. The Court granted the petition in the arbitration case a week later, on Friday Nov. 3.
Though the matters had been consolidated before the Court last year, the issue in Suski’s case differed from Bielski’s question about a litigation stay during arbitration. Still, it is unusual to see an arbitration case that was before the Court brought back so soon.
The Court took an arbitration case a second time in Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019), which was back in the Supreme Court in 2020, only to be dismissed as improvidently granted only a month after a second oral argument. For the details of the end Schein cases at the Court, and links to the earlier activity, see Russ Bleemer, “Scotus’s Henry Schein No-Decision,” CPR Speaks (Jan. 25, 2021) (available here).
The Schein issue was similar to last Friday’s cert grant--whether a contract clause delegating a case to an arbitrator could be preempted and sent to a court by words that exempt the consideration of specific issues, like injunctions, from the arbitrator.
In the new Suski case, petitioner Coinbase contends that silence in a second consumer contract concerning a sweepstakes doesn’t affect the arbitration delegation clause in the parties' first consumer contract. Coinbase states in its petition that the matter “presents a clear [U.S. Circuit Court] split over the enforceability of delegation clauses in arbitration agreements. . . . [and ] also presents a clean vehicle for resolving the question presented.”
In last term’s Coinbase v. Bielski decision in June, the Court resolved a circuit split and held that district court proceedings should automatically be stayed pending the appeal of a denial of a motion to compel arbitration. This decision was followed last month by the implementation of a new California law that does not require an automatic stay of litigation for arbitration matters in state trial courts (see California Code of Civil Procedure Section 1294(a) here.)
In the new Suski case before the Court, 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. Regarding the delegation clause, which stated 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.
Therefore, in the Ninth Circuit’s view, the issue of whether the forum selection clause in the Sweepstakes' Official Rules superseded the arbitration clause in the User Agreement was not delegated to the arbitrator, but rather was for the court to decide. Id.
Coinbase’s forum selection clause provides that California courts have exclusive jurisdiction over any controversies regarding the sweepstakes. Id. at 1228-29. Coinbase argued that the User Agreement contains an integration clause, and procedures for amendment of the User Agreement, and, therefore, the User Agreement could not have been superseded by the Official Rules, which Suski argued exempted the claims from arbitration. Id. at 1231.
Coinbase also argued that the Official Rules concern a different subject matter from the User Agreement and do not evince the parties' intent to amend, revise, revoke, or supersede any prior agreement, including the arbitration provision in the User Agreement. Id.
The Ninth Circuit did not agree with Coinbase. The appeals court indicated that “Under California law, ‘[t]he general rule is that when parties enter into a second contract dealing with the same subject matter as their first contract without stating whether the second contract operates to discharge or substitute for the first contract, the two contracts must be interpreted together and the latter contract prevails to the extent they are inconsistent.’” Id. at 1230.
The panel conceded that Coinbase was correct in stating that the Official Rules contain no language specifically revoking the parties' arbitration agreement in the User Agreement. But the Ninth Circuit held that by including the forum selection clause, the Official Rules evince the parties' intent not to be governed by the User Agreement's arbitration clause when addressing controversies concerning the sweepstakes. Id. at 1231.
For these reasons, the Ninth Circuit affirmed the district court’s holding that denied Coinbase’s request to compel arbitration.
* * *
Coinbase v. Suski will revisit at the nation's top Court the issue of delegation clauses in arbitration—the “Who Decides?” Question--an area that has produced controversy and confusion for drafters, arbitrators and litigators for more than a decade.
In addition to the Schein cases above, see Rent-A-Center West Inc. v. Jackson, 561 U.S. 63 (2010) (available here), which held that under the Federal Arbitration Act, “where an agreement to arbitrate includes an agreement that the arbitrator will determine the enforceability of the agreement, if a party challenges specifically the enforceability of that particular agreement, the district court considers the challenge, but if a party challenges the enforceability of the agreement as a whole, the challenge is for the arbitrator.”
The Court is expected to hear the new Coinbase v. Suski case, as well as Bissonnette, before the term ends next year, but neither has been scheduled at this writing.
* * *
The author, 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. Alternatives to the High Cost of Litigation editor Russ Bleemer assisted with the research for this post.