The United States Supreme Court recently granted a petition for certiorari to review a Ninth Circuit decision and resolve the issue of whether, when parties enter into an arbitration agreement with a delegation clause, the court or an arbitrator should decide whether that arbitration agreement is narrowed by a later contract that is silent as to arbitration and delegation. A delegation clause specifies that an arbitrator, and not a court, will decide threshold questions about the arbitration agreement, such as the applicability, scope and validity of the agreement. There is currently a circuit split on the enforceability of delegation clauses: First and Fifth Circuits compel arbitration under the delegation clause so that an arbitrator can decide whether the second contract narrowed the arbitration agreement in the first contract, while the Third and Ninth Circuits refuse to enforce delegation clauses where a second contract narrows an earlier arbitration agreement. This is the second time that the Supreme Court has addressed Petitioner Coinbase’s arbitration clause; in the prior case it reversed the Ninth Circuit, holding that an appeal from a denial of a petition to compel arbitration automatically stays proceedings below.
In Coinbase v. Suski, Coinbase users filed a putative class action in the Northern District of California relating to a sweepstakes run by Coinbase and co-defendant Marden-Kane Inc. when Coinbase began offering the cryptocurrency dogecoin. The sweepstakes offered entrants the opportunity to win $1.2 million in dogecoin. To participate in the sweepstakes, entrants had to agree to a set of “official rules,” which contained a forum selection clause stating that California courts would have sole jurisdiction over any controversies regarding the promotion of the sweepstakes. Plaintiff Suski and other sweepstakes entrants alleged that Coinbase misled them about the entry requirements for the sweepstakes in violation of California law. Coinbase moved to compel arbitration based on the Coinbase user agreements, which contained an arbitration provision with a delegation clause. Coinbase also argued that any potential dispute about the applicability of the arbitration agreement had been delegated to the arbitrator. Plaintiffs sought to avoid arbitration on the basis that the sweepstakes rules’ forum selection clause had superseded the arbitration agreement with respect to sweepstakes disputes.
In January 2022, U.S. Magistrate Judge Sallie Kim denied the motion to compel arbitration and held that the dispute should proceed in court. The Court held that the dispute related not to the scope of the arbitration provision but whether the arbitration agreement was superseded by another separate contract. Having dispensed with the delegation clause, the Court then held that the forum selection clause in the sweepstakes terms superseded the Coinbase user agreements: “[b]ecause the arbitration provision and the forum selection clause conflict, the subsequent contract supersedes the first.”
Coinbase appealed and moved to stay proceedings pending the resolution of that appeal. The District Court and Ninth Circuit refused Coinbase’s request for a stay and the Supreme Court reversed, holding that a district court must stay proceedings (see our publication discussing this decision here). After the Supreme Court granted certiorari on the stay issue, the Ninth Circuit issued a unanimous published decision affirming the Court’s denial of Coinbase’s motion to compel arbitration. The Ninth Circuit disagreed with Coinbase’s position that the question was an issue of the arbitration agreement’s scope that had been delegated to the arbitrator. The Ninth Circuit held that it was a question of the existence rather than the scope of an arbitration agreement, which was an issue for the court to decide. The Court held that “[b]ecause the user agreement and the [sweepstakes] official rules conflict on the question whether the parties’ dispute must be resolved by an arbitrator or by a California court, the official rules’ forum selection clause supersedes the user agreement’s arbitration clause.” Further, the Ninth Circuit explained that “[b]y including the forum selection clause … the official rules evince the parties’ intent not to be governed by the user agreement’s arbitration clause when addressing controversies concerning the sweepstakes.”
Coinbase filed a petition for a writ of certiorari in June 2023 and the Supreme Court granted certiorari on November 3, 2023. It argued that Supreme Court precedent requires enforcing delegation clauses in arbitration agreements absent a meritorious challenge specifically to a delegation provision, and since the subsequent contract here did not alter or challenge the arbitration agreement’s delegation provision, it must be enforced to allow an arbitrator to determine whether the second contract narrowed the arbitration agreement. This case is scheduled for argument during the Court’s October 2023-2024 term.
This case raises the important question of who decides whether a case belongs in arbitration or in court and gives the Supreme Court an opportunity to provide further guidance on the application of delegation clauses and any attacks on those clauses.
The issue of multiple, conflicting agreements arises frequently in the consumer, employment and commercial context, as parties revise prior agreements or add terms applicable to specific contexts. The Supreme Court’s decision will provide welcomed clarity on that issue.
Fenwick will continue to monitor developments in this case.