The Supreme Court unanimously ruled against a major cryptocurrency exchange on May 23, finding that a customer dispute over a sweepstakes should remain in the courts, as opposed to going to arbitration.
Coinbase wanted to compel disgruntled customers to participate in private arbitration instead of adjudicating their complaint in the courts.
Companies often prefer arbitration to the courts, saying the process resolves cases with greater speed and reduced expense. Some consumer advocates prefer the courts because, in their view, the judicial system provides consumers with more options and is less likely to side with the companies being sued.
The customers alleged they were duped into paying $100 to enter a sweepstakes they had virtually no chance of winning.
Lead respondent David Suski and other Coinbase customers entered a sweepstakes that offered entrants the opportunity to win prizes of as much as $1.2 million in Dogecoin, a digital currency.
Participants had to agree to separate rules that stipulated that “California courts (state and federal) shall have sole jurisdiction of any controversies regarding the promotion” of the sweepstakes, according to Coinbase’s petition.
Despite this forum-selection provision, Coinbase insisted that the dispute raised by its customers who consented to arbitration of disputes in their user agreements with the company should go to arbitration.
The respondents argued that the forum-selection provision in the sweepstakes rules governs in sweepstakes-related disputes and filed a class-action lawsuit in federal court in California, saying that the sweepstakes rules violated California law.
Lower Court Ruling
A federal district judge refused to send the dispute about the arbitrability of the case to an arbitrator. The judge found that the forum-selection clause had the effect of narrowing the parties’ arbitration agreement.“The dispute here is not over the scope of the arbitration provision, but rather whether the agreement was superseded by another separate contract,” the judge said.
The judge determined that the parties hadn’t “clearly and unmistakably delegated” to the arbitrator “how to address the interaction between two separate contracts.”
The U.S. Court of Appeals for the Ninth Circuit ruled that the case should stay in the courts.
Justice Ketanji Brown Jackson wrote the Supreme Court’s unanimous opinion in Coinbase Inc. v. Suski. Justice Neil Gorsuch wrote a concurring opinion.
Justice Jackson noted that the parties in the case signed two contracts.
One contained an arbitration provision with a delegation clause that stated an arbitrator “must decide all disputes under the contract, including whether a given disagreement is arbitrable.” The second contract featured a forum-selection clause that stipulated that all disputes related to that contract have to be decided in California courts.
Coinbase argued that because the first contract’s delegation clause laid out the terms for resolving all subsequent disputes, the arbitrability of a contract-related dispute between the parties is something for the arbitrator to determine.
But the customers and the Ninth Circuit held that the forum-selection clause in the second contract superseded the prior agreement.
“When two such contracts exist, who decides the arbitrability of a contract-related dispute between the parties—an arbitrator or the court?” Justice Jackson wrote.
“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. Accordingly, we affirm the judgment of the Ninth Circuit.”
Justice Jackson also addressed Coinbase’s argument that keeping the disputes in the courts would invite “chaos by facilitating challenges to delegation clauses.”
“We do not believe that such chaos will follow,” the justice wrote.
“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 in the case at hand, in which the parties agreed to two contracts, one sending arbitrability disputes to arbitration and the other “either explicitly or implicitly” sending arbitrability disputes to the court, a court has to determine which contract governs.
“To hold otherwise would be to impermissibly ‘elevate [a delegation provision] over other forms of contract,’” she wrote, citing Prima Paint Corp. v. Flood and Conklin Manufacturing Co. (1967).
Other Coinbase Cases
Coinbase had also argued that the Ninth Circuit erred in finding that the forum-selection clause in the sweepstakes-related contract superseded the other contract, a user agreement.The Supreme Court stated that the issue was “outside the scope of the question presented” and that the court does not address it in this ruling.
The Supreme Court previously weighed in on Coinbase-related disputes. In 2022, it denied emergency applications from Coinbase to stay two class-action lawsuits pending against the company. Coinbase had asked the court to put two lawsuits filed by users on hold, arguing that not doing so would cause the company irreparable harm.
An earlier iteration of the current case came before the Supreme Court in June 2023.
At that time, the Supreme Court ruled 5–4 in Coinbase Inc. v. Bielski that customer disputes shouldn’t move forward in the lower courts when appellate courts have yet to rule on the company’s request to divert those cases to arbitration panels.
