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In the Case of Two Contracts, Who Decides Arbitrability?
Thursday, May 30, 2024

Arbitration and forum selection clauses have become staples of consumer contracts. From accepting an end user license agreement to access an application to agreeing to a company’s terms of service to create an account on a company’s online platform, consumers routinely consent to either of these clauses. But what happens when a consumer accepts one agreement with an arbitration clause and then accepts a second agreement with a forum selection clause—both from the same company? And does a court or an arbitrator decide whether the dispute is subject to mandatory arbitration or litigation in the provided forum? 

In Coinbase, Inc. v. Suski, the Supreme Court answered the latter question, holding that when there are one or more contracts with conflicting arbitration and forum selection clauses, “a court must decide which contract governs,” and therefore “a court, not an arbitrator, must decide whether the parties’ first agreement was superseded by their second.” 601 U.S. ____ (2024), slip op. at 8.

In Coinbase, users of the cryptocurrency exchange platform, Coinbase Global Inc., filed a putative class action complaint against Coinbase in the United States District Court for the Northern District of California alleging that Coinbase’s “Dogecoin” sweepstakes violated California’s False Advertising Law, Unfair Competition Law and Consumer Legal Remedies Act. Coinbase moved to compel arbitration of the users’ claims, but its motion raised a threshold issue as to who decides the question of arbitrability, because two potentially conflicting agreements were at issue. 

To create a Coinbase account, all users had to agree to Coinbase’s User Agreement, which contains a binding arbitration clause stating that “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 . . . shall be decided by an arbitrator and not by a court or judge.” Id. at 2. But sweepstakes contestants also had to agree to the “official rules,” which included a forum selection clause providing that the California state and federal courts “shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion.” Id. at 3. 

The district court denied Coinbase’s motion to compel arbitration and concluded that in the event of a conflict between these two consumer agreements, the court had to decide in the first instance which agreement controlled, and as a matter of California contract law, the official rules for the sweepstakes superseded the User Agreement. The Ninth Circuit affirmed.

The Supreme Court granted certiorari “to answer the question of who—a judge or an arbitrator—should decide whether a subsequent contract supersedes an earlier arbitration agreement.” Id. The Court’s answer, in the end, was deceptively simple: applying “traditional contract principles,” 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.” Id. at 6. Consent to arbitration, like all matters of contract, is ultimately a question of what the parties have agreed to do, and a court must decide in the first instance whether a dispute is subject to arbitration (or, if the agreement so provides, that the arbitrator should make such a determination instead). In the circumstance where “the 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.” Id. at 8. Not surprisingly, the Court declined to address the Ninth Circuit’s interpretation of California law. 

Any business seeking to implement mandatory arbitration for its users would be well-advised to avoid the expense and uncertainty of disputes about threshold arbitration issues like the one presented in Coinbase. As Justice Gorsuch notes in a concurring opinion, one way out of this mess is incorporating an arbitration clause that, by its terms, supersedes any conflicting mandatory forum selection or arbitration provision in any other agreement between the parties, past or present, subject to change based only on an amendment to that agreement. In this way, the question of which forum—and who decides that question, the court or an arbitrator—should be straightforward and hopefully avoid requiring the Supreme Court’s guidance to even begin addressing the merits of the parties’ dispute.

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