By Shelly Ewald, Senior Partner
On May 23, 2024, the United States Supreme Court issued a decision that courts, not arbitrators, should decide whether an earlier agreement to arbitrate is binding on the parties to a dispute when a subsequent contract contains a forum selection clause providing that disputes will be resolved by state courts. Coinbase Inc. v. Suski et al., No. 23-3, slip op. (U.S. May 23, 2024). The Court has previously upheld arbitration clauses that delegate the issue of arbitrability to the arbitrator. See, e.g., Henry Schein v. Archer & White Sales, Inc., 586 U. S. 63, 65 (2019); see also Rent-A-Center, West, Inc. v. Jackson, 561 U. S. 63, 67 (2010). According to the Court, today’s decision in Coinbase does not signify a retreat from these decisions, but instead puts such delegation provisions on the same footing as other contracts:
But, where, as 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. To hold otherwise would be to impermissibly “‘elevate [a delegation provision] over other forms of contract.’”
Coinbase, No. 23-3, slip op. at 8 (quoting Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U. S. 395, 404, n. 12 (1967)).
The underlying dispute involved two contracts between the Petitioner, Coinbase, Inc, a cryptocurrency platform, and the Respondents, who are Coinbase users. The first contract is the Coinbase User Agreement (Contract #1), which contains an arbitration provision with a delegation clause, and which the Respondents agreed to when they created their accounts. The second contract is the Official Rules for a sweepstakes (Contract #2), which Respondents entered, and contained a forum selection clause providing that California courts had “sole jurisdiction of any controversies” related to the sweepstakes. The Respondents filed a class action in California federal court and Coinbase moved to compel arbitration based on Contract #1. The District Court found that Contract #2 controlled the lawsuit and the Ninth Circuit agreed.
The High Court framed the question presented: “When two such contracts exist, who decides the arbitrability of a contract-related dispute between the parties—an arbitrator or the court?” Siding with the Respondents, the unanimous Court affirmed the Ninth Circuit’s decision that, under the facts presented, a court should determine arbitrability.1 In so finding, the Court stated that “[a]rbitration is a matter of contract and consent, and we have long held that disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes.”
Citing the Federal Arbitration Act (FAA), the Court reiterated that “arbitration is a matter of contract,” and noted various levels of agreement regarding arbitration. These include agreements “to send the merits of a dispute to an arbitrator” and agreements that an arbitrator (not a court) will resolve arbitrability “as well as underlying merits disputes.” Id. at 2. These different agreements lead to different types of disputes. Citing previous precedent, the Court set forth these various disputes and stated that a first-order dispute goes to the merits of the matter, a second-order dispute relates to whether the parties “agreed to arbitrate the merits,” and a third-order dispute relates to whether a court or arbitrator has the “primary power to decide” the second-order dispute.
The Court then found that the present matter involved a fourth layer of arbitration dispute: “What happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability?” Not surprisingly, the Court determined that traditional contract principles apply and held: “When we home in on the conflict between the delegation clause in the first contract and forum selection clause in the second, 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.”
To those who would elevate the decision to causing chaos regarding the somewhat settled law surrounding arbitrability disputes (as Coinbase did), the Court distinguishes its decision and states that it is limited to instances where two conflicting contracts are involved and that in those instances, “a court must decide which contract governs.”
- It is worth noting that the Court refused to decide whether, as Coinbase asserted, the “Ninth Circuit was wrong to apply California law when it held that the Official Rules’ forum selection clause superseded the User Agreement’s delegation provision” because it was “outside the scope of the question presented.” ↩︎