Supreme Court Appears Hesitant to Take Away Contract Law Decisions from States

In Coinbase Inc. v. Suski, the Supreme Court considers an arbitration issue arising when parties enter into an arbitration agreement with a delegation clause and a later contract that is silent as to arbitration and delegation. The issue is whether an arbitrator or a court should decide if the arbitration agreement was is narrowed by the later contract.

Coinbase, an online cryptocurrency exchange, requires its users to accept an “User Agreement” that includes an arbitration provision. In June 2021, Coinbase launched a Dogecoin Sweepstakes that required participants to opt into “Official Rules” with a forum selection clause stipulating exclusive jurisdiction of California courts for related disputes. Users who participated in the sweepstakes agreed to both the User Agreement and the Official Rules. David Suski and three other users who entered the sweepstakes sued Coinbase and the sweepstakes management company, alleging a variety of consumer fraud violations. Coinbase sought to compel arbitration based on the User Agreement, but the district court denied the motion, concluding that the Official Rules trumped the User Agreement’s arbitration clause. On appeal, the Ninth Circuit affirmed, holding that the dispute should be resolved in the California court system under the Official Rules, not through arbitration as Coinbase had sought.

At oral argument, Justice Thomas asked if the conflict between the User Agreement and the Official Rules could have been solved simply by either having an express arbitration provision in the Official Rules or by incorporating the User Agreement into the Official Rules. Justice Jackson contended that if two contracts make clear or imply two different delegation principles, the question should focus on what the parties intended. She also clarified that had there only been one contract, with different parts, and if only one of those parts had a delegation agreement, it would not be an issue. But the fact that there are two separate contracts here creates the dispute. Justice Kagan questioned whether just the language of the delegation clause is broad enough to cover any arbitrability dispute.

Justice Sotomayor expressed discomfort with the relief the parties sought, suggesting that the Court should not create a set of federal rules for state courts to follow or not follow in interpreting contracts. And she suggested that Coinbase gave away its case when it pushed for vacating the decision. Similarly, Justice Gorsuch said he was struggling to see why this case is being heard at all because it seemed that both parties conceded they could have received an answer from an arbitrator and that the first agreement is broad enough in scope to cover all relationships with Coinbase. And, he expounded, if the parties were bound by the arbitration clause, an arbitrator would likely conclude that the case should be litigated in federal court.

The case was argued on February 28, 2024. A decision is expected later in the term. Stay tuned for Dykema’s client alert discussing the Court’s opinion.

For more information, please contact Chantel Febus, James Azadian, Cory Webster, Christopher Sakauye, McKenna Crisp, Monika Harris, or Puja Valera.