The Supreme Court unanimously held in Coinbase Inc. v. Suski that when parties enter into two contracts—one requiring an arbitrator to decide the arbitrability of the dispute and the other giving a court the jurisdiction to decide controversies—the decision of which contract will govern will be decided by the courts. Justice Jackson authored the opinion.

As previously summarized in Dykema’s March 2024 edition, David Suski and three other users participated in a Dogecoin Sweepstakes by Coinbase. Coinbase required its users to enter a “User Agreement” that included an arbitration provision with a delegation clause. Under the terms of the Sweepstakes, participants were required to agree to the “Official Rules,” which included a forum selection clause giving California courts exclusive jurisdiction over disputes related to the Sweepstakes. The four participants later sued Coinbase, alleging claims under California consumer protection laws. Based on the arbitration clause in the User Agreement, Coinbase moved to compel arbitration. The United States District Court for the Northern District of California denied the motion, holding that the forum selection clause within the Official Rules controlled the parties’ dispute. On appeal, the Ninth Circuit affirmed.

In its opinion, the Supreme Court reiterated the long-standing legal principle that arbitration may be compelled only if the parties have consented to arbitration. Therefore, when there are two conflicting agreements, a court must decide what exactly the parties have agreed to—which will in turn dictate what contract controls the dispute. The Court rejected Coinbase’s argument that the User Agreement’s delegation clause is severable from the rest of the contract and controls unless the challenge is to the delegation clause itself. It held that the severability principle does not apply because the plaintiffs’ challenges applied “‘equally’ to the whole contract.” Because the plaintiffs challenged the underlying validity of the contracts—and because the forum selection and arbitration clauses are components of a contract—fundamental principles of contract law require a court to address the validity of the contracts before deciding the merits. The Court disagreed with Coinbase’s argument that its approach will “invite chaos by facilitating challenges to delegation clauses.” The Court instead reasoned that to compel arbitration in cases with conflicting contracts would improperly elevate the arbitration clause over other forms of contract.

The Court left open the issue of whether the Ninth Circuit correctly held that, as a matter of California law, the forum selection clause in the Official Rules superseded the arbitration provision in the User Agreement. In his concurrence, Justice Gorsuch highlighted that the Court does not endorse the Ninth Circuit’s state law analysis and instead leaves the question open.

Takeaway

• When different contracts between the same parties have conflicting forum selection and arbitration clauses, a court will decide which contract will govern the dispute.

For more information, please contact Chantel Febus, James Azadian, Cory Webster, Christopher Sakauye, Monika Harris, Puja Valera, or A. Joseph Duffy, IV.