Right to Arbitration, Maybe Not. Courts Must Resolve Conflict of Arbitration Provisions when Parties Enter Multiple Contracts

In May, the Supreme Court issued a decision in COINBASE, INC. v. SUSKI determining that a court must resolve conflicts regarding which contract governs where the parties have agreed to multiple conflicting contracts.

Coinbase is an operator of a cryptocurrency exchange platform. Suski, and other respondents, was a user of Coinbase’s cryptocurrency platform.

The First Contract

Coinbase users entered into a User Agreement when they created their accounts. The User Agreement contained an arbitration provision with a delegation clause[1], detailing that an arbitrator must decide disputes under the contract, including whether a given disagreement is subject to the arbitration agreement.

The Second Contract

Coinbase ran a promotional sweepstakes for its user. The Official Rules for the promotional sweepstakes included a forum selection clause which provided that California courts “shall have sole jurisdiction of any controversies” regarding the promotion.

The Underlying Litigation

Class action litigation, in the U.S. District Court for the Northern District of California, was commenced against Coinbase related to the promotional sweepstakes alleging numerous violations of California’s consumer protection laws. Coinbase moved to compel arbitration based upon the User Agreement. The District Court determined that the Official Rules for the promotion controlled over the issues of the class action dispute, and denied the motion to compel arbitration. The Ninth Circuit affirmed the District Court; the Supreme Court agreed to hear the case to resolve a novel kind of dispute regarding arbitrability, calling this a fourth order dispute.

The Fourth Order Dispute

The Court’s opinion explained that parties can form multiple levels of agreement regarding arbitration, and thus can have different levels of dispute needing resolution. The merits of the dispute is a first-order disagreement. Whether the parties have agreed to arbitrate the merits of the underlying dispute is a second-order dispute. A third-order dispute is a question of who has the primary authority to decide the question of arbitrability. Here, the Court needed to resolve what happens if parties have multiple contracts that conflict regarding the third-order dispute.

The Court’s Opinion

Justice Jackson, relying on basic legal principles of contract law, delivered the opinion of a unanimous court holding that where parties have agreed to two conflicting contracts, a court must answer the question of which contract controls the dispute. Arbitration is a matter of contract and consent; disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes. Before either the delegation provision or the forum selection clause can be enforced, a court needs to determine what the parties have actually agreed to. In this case, the court must resolve which contract controls the dispute; the Supreme Court affirmed the District Court’s and Ninth Circuit’s determination that the Official Rules governed over the dispute, and therefore the matter was properly before a California court pursuant to the forum selection clause.

Specifically, the Supreme Court concluded that a court, not an arbitrator, must decide whether the parties’ first contract is superseded by their second.

What to Expect

What does the Court’s decision mean for you? The Coinbase decision is a good reminder to be vigilant and exacting in preparing your contract documents. When preparing subsequent documents make sure you don’t contradict your own desired outcome.