Supreme Court Decision on Conflicting Arbitration Provisions in Coinbase Case

Case Background

In Coinbase, Inc. v. Suski, 602 U.S. __ (2024), the U.S. Supreme Court addressed the issue of conflicting arbitration provisions when parties have agreed to two different contracts. The case involved Coinbase, Inc., a cryptocurrency exchange platform, and its users, who had entered into two separate agreements. The first contract, the Coinbase User Agreement, includes an arbitration provision with a delegation clause, stipulating that an arbitrator must decide all disputes, including the arbitrability of any disagreement. The second contract, the Official Rules for a promotional sweepstakes, contains a forum selection clause granting California courts “sole jurisdiction of any controversies regarding the [sweepstakes] promotion.”

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

Supreme Court’s Decision

The Supreme Court unanimously affirmed the Ninth Circuit’s decision, holding that a court, not an arbitrator, must decide which of the two conflicting contracts governs the dispute. 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.”

The Court elaborated that parties can have multiple levels of agreements concerning arbitration. There can be first-order disagreements about the merits of a dispute, second-order disputes over whether the parties agreed to arbitrate the merits, and third-order disputes about who has the authority to decide the second-order matter. The case at hand involves a fourth kind of dispute: conflicts arising from multiple agreements about who decides arbitrability.

The Court clarified that when there is a conflict between a delegation clause in one contract and a forum selection clause in another, the question of whether the parties agreed to arbitration must be resolved by a court.

The Court rejected Coinbase’s argument that the Ninth Circuit should have applied the severability principle, which treats an arbitration or delegation provision as separable from the rest of the contract. The Court emphasized that the severability rule does not require a challenge solely to the arbitration or delegation provision. If a challenge applies equally to the whole contract and the arbitration or delegation provision, a court must address it.

Regarding Coinbase’s concern that the ruling would “invite chaos” by encouraging challenges to delegation clauses, Justice Jackson wrote:

“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. 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.'”