SCOTUS Clarifies Court Must Resolve Competing Arbitration Provisions

In Coinbase, Inc. v. Suski, 602 U.S. ____ (2024), the U.S. Supreme Court held that where 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.

Facts of the Case

The dispute centered on two contracts executed by Coinbase, Inc., operator of a cryptocurrency exchange platform, and its users. The first contract—the Coinbase User Agreement that users agreed to when they created their accounts—contains an arbitration provision with a delegation clause. Per this provision, an arbitrator must decide all disputes under the contract, including whether a given disagreement is arbitrable.

The second contract—the Official Rules for a promotional sweepstakes respondents entered—contains a forum selection clause providing that California courts “shall have sole jurisdiction of any controversies regarding the [sweepstakes] promotion.”

David Suski, a Coinbase user, ultimately filed a class action in the U.S. District Court for the Northern District of California, alleging that the sweepstakes violated various California laws. Coinbase moved to compel arbitration based on the User Agreement’s delegation clause. The District Court determined that the Official Rules’ forum selection clause controlled the parties’ dispute and accordingly denied the motion. The Ninth Circuit affirmed.

Supreme Court’s Decision

The Supreme Court unanimously affirmed. It agreed with the Ninth Circuit that acourt, not an arbitrator, is the proper decider of which of two conflicting contracts should apply in the case.As Justice Ketanji Brown Jackson explained:

This case thus presents the following question: When two such contracts exist, who decides the arbitrability of a contract-related dispute between the parties—an arbitrator or the court? Basic legal principles establish the answer. Arbitration 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. Here, then, 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.

In reaching its decision, the Court explained that parties can form multiple levels of agreements concerning arbitration, and thus can have different kinds of disputes. At a basic level, parties can agree to send the merits of a dispute to an arbitrator. The merits of a dispute is a first-order disagreement. The parties may also have a second-order dispute— “whether they agreed to arbitrate the merits”—as well as a third-order dispute—“who should have the primary power to decide the second matter.”

The Court went on to find that the case involves a fourth kind of dispute: What happens if parties have multiple agreements that evidence a conflict over the answer to the third-order question of who decides arbitrability? According to the Court, “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.”

The Court also rejected Coinbase’s arguments that the justices should revisit the Ninth Circuit’s bottom-line conclusion. With regard to Coinbase’s argument that the Ninth Circuit should have applied the so-called severability principle, under which “an arbitration [or delegation] provision is severable from the remainder of the contract,” the Court emphasized that the severability rule does not require that a party challenge only the arbitration or delegation provision. Rather, where a challenge applies “equally” to the whole contract and to an arbitration or delegation provision, a court must address that challenge.

The Court dismissed the argument that its ruling would “invite chaos” by facilitating challenges to delegation clauses. “We do not believe that such chaos will follow. In cases where parties have agreed to only one contract, and that contract contains an arbitration clause with a delegation provision, then, absent a successful challenge to the delegation provision, courts must send all arbitrability disputes to arbitration,” Justice Jackson wrote.

“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.’”