On May 23, 2024, the United States Supreme Court held that if parties' agreements conflict as to whether a dispute is subject to arbitration, then a court (not an arbitrator) must decide which contract controls. Coinbase, Inc. v. Suski, --- S.Ct. ----, 2024 WL 2333424 (2024).
The case concerned the interplay of two contracts between a company that operated a cryptocurrency exchange and certain of its users. The first agreement, a user agreement entered into when the users created their accounts, contained an arbitration provision with a delegation clause, under which an arbitrator was to decide all disputes under the contract, including whether any particular dispute was subject to arbitration. Id. at *2. The second agreement, the "official rules" for a promotional sweepstakes the users entered, contained a forum selection clause requiring that all disputes regarding the promotion be decided in California courts. Id. at *3.Plaintiffs filed a putative class action in the United States District Court for the Northern District of California, alleging that the sweepstakes violated California law; in response, the company moved to compel arbitration. The district court denied that motion, holding that the forum selection clause in the latter contract controlled, and the Ninth Circuit affirmed. Id.
The Court first explained that "[a]rbitration is a matter of contract and consent," and that disputes are only subject to arbitration if the parties "actually agreed to arbitrate those disputes." Id. at *2. The Court noted that parties can agree to arbitrate various layers of disputes, such as a dispute about the merits (a "first-order" dispute), a dispute about whether the parties agreed to arbitrate the merits (a "second-order" dispute), and a "third-order" dispute about "who should have the primary power" to decide the second-order dispute. Id. at *4. The Court noted that the parties' agreements here presented a fourth type of dispute—"[w]hat happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability?" Id.
The Court explained that the parties' dispute was, at bottom, over whether there was an agreement to arbitrate (if the user agreement and its delegation clause applied) or not (if the official rules of the promotion and its forum selection clause applied). The Court concluded that this question "can be answered only by determining which contract applies"—and that that underlying question must be answered by a court. Id.
The Court rejected the company's argument that, under the severability principle, the lower courts should have isolated the delegation provision in the user agreement and considered whether plaintiffs challenged the applicability of that provision specifically as opposed to challenging the applicability of the entire agreement. The Court concluded that, even if the severability principle applied, it was satisfied here because plaintiffs' challenge to the applicability of the user agreement applied equally to the entire contract, not just to its delegation provision. Id. at *5.
The Court declined to address the company's argument that the Ninth Circuit erred as a matter of California law in holding that the forum selection clause superseded the arbitration delegation provision. The Court emphasized that the scope of the question presented was only whether, under the Federal Arbitration Act (9 U.S.C. § 2), a court or an arbitrator should decide which of those two provisions controlled. Id.
The Court also rejected the company's argument that the Court's approach would "invite chaos by facilitating challenges to delegation clauses." Id. at *6. The Court explained that its ruling did not diminish the enforceability of arbitration delegation provisions, but rather addressed only the situation where two contracts conflicted, requiring a court to decide which contract governs. The Court noted that "[t]o hold otherwise would be to impermissibly 'elevate [a delegation provision] over other forms of contract.'" Id.
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