Conflict of Contracts: SCOTUS Backs Courts Rather Than Arbitrators to Resolve

With its recent decision in Coinbase Inc. v. Suski, the U.S. Supreme Court held that when parties have agreed to two separate contracts, one sending arbitrability disputes to arbitration and the other sending arbitrability disputes to the courts, the courts must decide which contract governs.

Suski involved a class action lawsuit against Coinbase Inc., a cryptocurrency trading platform. The plaintiffs in the suit were several participants in a sweepstakes hosted by Coinbase. When creating their Coinbase accounts, users agreed to Coinbase’s user agreement, which contained a delegation provision granting an arbitrator exclusive authority to resolve all disputes under the contract, including the arbitrability of the dispute. However, to participate in the sweepstakes, the plaintiffs subsequently agreed to the official rules of the sweepstakes. The official rules contained a forum selection clause that granted California courts sole authority over disputes arising out of the sweepstakes.

The sweepstakes participants filed the underlying class action in the U.S. District Court for the Northern District of California, alleging that the promotion violated California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act. Coinbase moved to compel arbitration, arguing that the user agreement controlled both the merits of the claims as well as whether the dispute was arbitrable. The plaintiffs argued that the official rules’ forum selection clause superseded the user agreement, giving California courts exclusive authority over their claims. The district court, applying California contract law, ultimately concluded that the official rules’ forum selection clause superseded the user agreement’s delegation clause and denied Coinbase’s motion to compel arbitration. The Ninth Circuit affirmed.

The Supreme Court, affirming the decision of the Ninth Circuit, held that the district court was correct to apply contract principles to determine which agreement controlled. The operative question was whether the parties had agreed to submit the issue of arbitrability to arbitration. Considering the conflicting provisions of the agreements, it was not clear what the parties had agreed to. The Supreme Court reasoned that this was a matter of contractual interpretation, which could only be resolved by the courts. The court reasoned that arbitration is strictly a matter of consent and that arbitration may only be used to resolve disputes that the parties have expressly agreed to submit to arbitration. In addition, the Supreme Court rejected Coinbase’s argument that isolating the delegation clause pursuant to the severability principle would have affected its decision. Lastly, the Supreme Court declined to address whether the Ninth Circuit had correctly applied California contract law because the question was outside the scope of the question presented on appeal.

This decision serves as a reminder that valid arbitration agreements may be impacted by subsequent contracts with conflicting provisions. With this understanding, parties seeking to enforce arbitration agreements should take care to ensure that all other agreements are consistent with the desired arbitration provisions.

This article was co-authored by Carlton Fields summer associate David Safir.