Class Action and Product Insights for Your Business
June 20, 2024 - Appellate & Supreme Court, Arbitration, Class Action

Beware of Conflicting Terms: When Customers Entered into Multiple Contracts, SCOTUS Says Courts Must Decide Which One Governs Arbitrability

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On May 23, 2024, the United States Supreme Court decided Coinbase, Inc., v. Suski, No. 23-3, serving a reminder to companies with mandatory consumer-facing arbitration provisions that contractual consistency is a key to enforceability. In Justice Jackson’s unanimous opinion, the Court found that “[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.”

This case involved the users of a cryptocurrency exchange platform, Coinbase, Inc. (“Coinbase”), entering into two digital contracts. The first contract, the Coinbase User Agreement (“User Agreement”), contained a delegation clause that provided that any disputes regarding arbitrability would be decided by an arbitrator. The second contract, the Official Rules for the Dogecoin promotional sweepstakes (“Sweepstakes Rules”), contained a forum selection clause that provided sole jurisdiction over sweepstakes-related disputes to the California courts.

Plaintiff assented to both the User Agreement and Sweepstakes Rules. But following the sweepstakes, he filed a putative class action in the United States District Court for the Northern District of California alleging that Coinbase misrepresented entrance requirements into the Dogecoin sweepstakes in violation of various California laws. Coinbase moved to compel arbitration and argued that the User Agreement’s delegation clause meant that an arbitrator had to decide any arbitrability challenges to the scope or enforceability of the arbitration provision. But the district court held that it first needed to decide which contract’s dispute resolution provisions applied, since this would determine if the court or an arbitrator should decide who would ultimately hear the case, based on the dueling provisions. The court held that it, not the arbitrator, should determine which contract controlled. The court, applying California state law, then also held that the Sweepstakes Rules’ forum selection clause controlled, denying Coinbase’s motion to compel. The Ninth Circuit Court of Appeals affirmed.

On May 23, 2024, the Supreme Court affirmed, explaining that when two contracts conflict as to which one decides the arbitrability of a dispute, this threshold issue must be decided by a court in the first instance. The Court based this decision on “basic legal principles” that “disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes.” This includes if the dispute is over arbitrability itself. In other words, “before either the delegation provision or the forum selection clause can be enforced, a court needs to decide what the parties have agreed to—i.e., which contract controls.” Here, this means the issue of whether the parties’ second agreement superseded their earlier agreement regarding who decides arbitrability for the sweepstakes-related disputes is therefore to be decided by the court before referring the dispute to arbitrators.

The Court did make clear that their decision was limited in scope, particularly in Justice Gorsuch’s concurrence. They “reaffirm[ed] well-established principles about the primacy of the parties’ agreements when it comes to arbitration,” with their decision turning on the very specific conflict between the two contracts. The Court declined to address the secondary holding that the Sweepstakes Rules’ forum selection clause took precedence over the User Agreement’s arbitration clause, leaving the Ninth Circuit holding in place and leaving the case in the California court.

Key takeaways: Companies seeking to enforce arbitration clauses should keep in mind the importance of uniform language across contracts, particularly when it comes to arbitration agreements. In particular, companies with consumer-facing agreements online, which are often supplemented by side promotions or sweepstakes that contain unique terms, need to consider the interplay between these various contracts. As this decision demonstrates, a delegation clause in the initial terms of service does not always guarantee arbitration if companies are not meticulous across all terms and agreements. But the Supreme Court did make clear that this holding is narrow—if the second Sweepstakes Rules contract didn’t exist, the court would have compelled arbitration. So beware of conflicting terms!

Read the Court’s opinion.