U.S. Supreme Court Unanimously Affirms That Courts—Not Arbitrators—Must Decide Arbitrability Where Contracts Conflict

Last week, in Coinbase, Inc. v. Suski¹, the U.S. Supreme Court unanimously held that, where two contracts conflict over whether disputes on arbitrability should go to arbitration or the court, the court, not an arbitrator, should decide the issue.

What you need to know

• Companies should be cautious when entering successive agreements with the same parties. Companies should ensure that when they enter into successive agreements with the same party, the dispute-resolutions provisions across agreements are uniform.
• The decision's impact is limited. In the absence of conflicting dispute resolution provisions, parties can still require, and rely on, an arbitrator to determine the threshold issue of whether arbitration is the proper forum for the dispute.
• The Supreme Court does not believe its decision will cause “chaos”. Although Coinbase argued that “chaos” would ensue by facilitating challenges to delegation clauses if the lower courts' decision was upheld, the Court observed that parties can avert that scenario through single, consistent dispute-resolution provisions.

Background

This dispute relates to two contracts executed by petitioner Coinbase, Inc., the operator of a cryptocurrency exchange platform, and platform user respondents. The first contract is a User Agreement, which contained an arbitration provision with a delegation clause, requiring an arbitrator to not only decide all disputes under the contract but also whether the dispute is arbitrable in the first place. The second, and later-in-time, contract is the Official Rules for a sweepstakes promotion that Respondents had entered, which contains a forum selection clause providing California courts with sole jurisdiction over any disputes relating to the sweepstakes.

The litigation

Respondents filed a putative class action in California district court alleging the sweepstakes violated various California laws. Coinbase sought to compel arbitration under the User Agreement. The trial court held that the User Agreement—and its California forum selection provision—controlled. The U.S. Court of Appeals for the Ninth Circuit affirmed, and the U.S. Supreme Court granted certiorari to decide a question it had not previously considered.

The appeal

Citing basic legal principles, the Supreme Court began by explaining that the Federal Arbitration Act (FAA) reflects the fundamental principle that arbitration is a matter of contract, which places arbitration agreements on equal footing with other contracts. Parties can therefore address whether, and to what extent, disputes will be arbitrated or decided by a court including: (1) the merits of the dispute; (2) arbitrability, that is, whether arbitration is the proper forum for a dispute; and (3) who decides arbitrability. However, the Court noted that Coinbase presents still another, fourth question where multiple agreements conflict on who decides arbitrability.

Because that fourth question requires a determination of arbitrability and ultimately of which contract applies in the first instance, the Court held that those questions must be answered by a court:

“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”².

Focusing on the Ninth Circuit's “bottom line conclusion”, the Court declined to address Coinbase's arguments on the Ninth Circuit's application of the severability principal (severing an arbitration or delegation provision from the remainder of the contract), and its application of California law.

The Court also rejected Coinbase's claim that its holding would invite chaos by facilitating challenges to delegation clauses. The Court reasoned that where two contracts are at issue, a court must decide which governs because to hold otherwise would be to elevate a delegation provision over other contract forms. Parties can ensure they avoid the “chaos” by employing consistent dispute-resolution terms across multiple agreements between themselves.

Justice Ketanji Jackson delivered the opinion of the Court, with Justice Gorsuch concurring.

Footnotes

1. No. 23-3 (2024).

2. Id. at 8.

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