Where parties have executed one contract delegating arbitrability disputes to an arbitrator and another that reserves “sole jurisdiction of any controversies” for a court to decide, who decides whether a lawsuit between the parties is arbitrable? A court, not an arbitrator, according to the U.S. Supreme Court – at least where the parties have not agreed otherwise.

Two agreements with conflicting arbitration provisions lay at the heart of Coinbase, Inc. v. Suski, No. 23-3, 2024 U.S. LEXIS 2263, at *5 (S. Ct. May. 23, 2024). The Supreme Court considered who should decide which contract applies: a court or an arbitrator. The Court held that where parties have agreed to two contracts – one sending arbitrability disputes to arbitration and the other sending all controversies, including arbitrability disputes, to the courts – a court must decide which contract governs (that is, unless the parties agree otherwise. As emphasized in Justice Gorsuch’s concurrence, discussed below, the holding does nothing to limit a party’s ability to agree by contract that an arbitrator should decide this kind of dispute). The Court’s opinion provides useful guidance to businesses drafting arbitration and forum selection provisions and a reminder to ensure these provisions are consistent across contracts with the same parties.

Legal Background

Business contracts often provide for arbitration. As a general rule of American law, businesses (like other parties to a contract) may agree to arbitrate disputes privately rather than in court. They may also contract to arbitrate questions of arbitrability – i.e., whether a dispute is subject to arbitration. Furthermore, they may agree for an arbitrator to decide whether questions of arbitrability are arbitrable. The Federal Arbitration Act (FAA) explicitly endorses this as a matter of federal policy.

In accordance with these statutory provisions, federal courts have developed a body of case law to evaluate these three layers of arbitration disputes, which the Coinbase court helpfully frames as (1) merits, (2) arbitrability, and (3) who decides arbitrability. 2024 U.S. LEXIS 2263, at *5. Coinbase involved a fourth layer: What happens if parties have multiple agreements that conflict as to the third question of who decides arbitrability? The Supreme Court in Coinbase addressed whether, under the FAA, a court or an arbitrator must decide which of the two contracts controls.

Factual and Procedural Background

Coinbase is a cryptocurrency exchange platform operator. Coinbase requires all users to agree to Coinbase’s User Agreement when creating an account on the platform. The User Agreement contains an arbitration provision with a delegation clause stating that an arbitrator must decide all disputes under the contract, including whether a given disagreement is arbitrable. Specifically, the clause states:

This Arbitration Agreement includes, without limitation, disputes arising out of or related to the interpretation or application of the Arbitration Agreement, including the enforceability, revocability, scope, or validity of the Arbitration Agreement or any portion of the Arbitration Agreement. All such matters shall be decided by an arbitrator and not by a court or judge.

The dispute in question arose after Coinbase offered a sweepstakes, which required users to agree to a second contract, the contest’s Official Rules. Unlike the User Agreement, the Official Rules contained a forum selection clause providing that California courts “shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion.” Acting under this provision, a group of users brought a putative class action in the Northern District of California, alleging the sweepstakes violated California consumer protection laws.

Coinbase moved to compel arbitration under the User Agreement. Coinbase argued that the User Agreement’s delegation clause sent the question of arbitrability to arbitration since the foundational agreement established the terms by which all later disputes would be resolved. The users countered that the second contract, the Official Rules, superseded the User Agreement and either explicitly or implicitly sent arbitrability disputes to the courts through the forum selection clause.

The district court denied Coinbase’s motion to compel arbitration. The district court agreed that it was up to the court to decide which contract governed. The court then determined that, under California contract law, the Official Rules superseded the User Agreement, and thus the Official Rules’ forum selection clause controlled the parties’ dispute.

The Ninth Circuit affirmed. Suski v. Coinbase, Inc., 55 F.4th 1227 (9th Cir. 2022). The Court of Appeals stated the district court correctly ruled that the issue of whether the forum selection clause in the Official Rules superseded the arbitration clause in the User Agreement was not delegated to the arbitrator but was for the court to decide. Id. at 1230. The Ninth Circuit also agreed that because the agreements conflicted on whether the parties’ dispute must be resolved by an arbitrator or by a California court, the Official Rules’ forum selection clause superseded the User Agreement’s arbitration clause. Id. at 1231.

Coinbase petitioned for Supreme Court review, and the Supreme Court granted certiorari.

The Court’s Opinion

The Supreme Court affirmed.

The court first discussed that arbitration is a matter of contract and consent. Disputes are subject to arbitration if, and only if, the parties agreed to arbitrate those disputes. Just as the arbitrability of a dispute depends on whether the parties agreed to arbitrate that dispute, the question of who has the power to decide arbitrability also turns on what the parties agreed to. As noted in First Options of Chicago, Inc. v. Kaplan, “[c]ourts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so.” 515 U.S. 938, 944 (1995).

Here, the question of whether these parties agreed to arbitrate arbitrability could only be answered by determining which of the two contracts applied.

The court explained that when parties have agreed to only one contract containing an arbitration clause with a delegation provision, then courts must send all arbitrability disputes to arbitration. But where parties, as in this case, have agreed to two contracts – one sending arbitrability disputes to arbitration and the other sending them to the courts – a court must decide which contract governs. The court stated that to hold otherwise would be to impermissibly “elevate [a delegation provision] over other forms of contract.” Coinbase, 2024 U.S. LEXIS 2263, at *14 (quoting Rent-A-Center, 561 U.S. 63, 71 (2010)).

For these reasons, the Supreme Court unanimously held that where parties have agreed to two contracts – one sending the question of arbitrability to arbitration and the other sending it to the courts – a court, not an arbitrator, must decide which contract governs.

In his concurrence, Justice Gorsuch emphasized the court’s opinion that arbitration is a contract matter noting that parties could agree to have an arbitrator resolve which contract controlled. He thus clarified that the court did not explicitly endorse the reasoning in the Ninth Circuit’s opinion that courts will always decide which contract controls. The court only reaffirmed the well-established principles on the authority of the parties’ agreements when it comes to arbitration and the bottom-line rule that a court must decide which contract applied here.

Takeaways

Ongoing business relationships often require multiple contracts between the same parties. The Supreme Court decision in Coinbase reminds businesses to closely examine the arbitration and forum selection provisions in these contracts. Courts will compel arbitration for disputes that parties clearly agreed to arbitrate. If there are conflicting contracts, it will be up to the courts, not an arbitrator, to determine which contract governs. This means parties may end up in court despite having previously agreed to arbitration. It is thus critical that these clauses are clear and consistent to ensure the parties’ intent is followed.

Taft’s Commercial Contracts attorneys guide businesses through the drafting of arbitration provisions and all manner of commercial contracts and also review current contract provisions to ensure they remain enforceable and compliant with the latest legal developments like this Supreme Court opinion. Taft’s Arbitration and Mediation practice then represents clients in arbitration, mediation, and other alternative dispute resolution proceedings. Taft has experience handling all phases of commercial disputes, including developing dispute resolution strategies and conducting arbitration and mediation hearings, and has a strong record of delivering a full range of solutions to clients’ challenges.

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Taft summer associate Danielle Heinz also contributed to this law bulletin.