SUMMARY

The Supreme Court has held that when parties have agreed to two contracts—one delegating arbitrability disputes to the arbitrator, and the other either explicitly or implicitly reserving arbitrability disputes for the courts—a court must decide which contract governs.

The case centers on a proposed class action brought by the plaintiffs who had entered a sweepstakes offered by Coinbase. They allege that Coinbase told consumers they were required to purchase a specific cryptocurrency called Dogecoin in order to enter the sweepstakes, when in fact they could enter for free. The plaintiffs had created accounts with Coinbase's platform and agreed to its User Agreement. The User Agreement contained an arbitration agreement and a delegation clause. The plaintiffs then entered into a second contract when they submitted entries to the sweepstakes and, in doing so, agreed to the Official Rules of the sweepstakes. Unlike the User Agreement, the Official Rules contained a forum selection clause sending disputes to California courts. Once the sweepstakes concluded, the plaintiffs filed a class-action complaint in the U. S. District Court for the Northern District of California, alleging that the sweepstakes violated California's False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act. Invoking the User Agreement and its delegation clause, Coinbase moved to compel arbitration.

In a unanimous decision by Justice Ketanji Brown Jackson, the Court affirmed the Ninth Circuit's holding that the court, not the arbitrator, should decide whether the forum selection clause of the Official Rules superseded the earlier arbitration agreement contained in the User Agreement. In doing so, the Court emphasized that this is a matter of “basic legal principles,” which dictate that “[a]rbitration is a matter of contract and consent,” and thus “disputes are subject to arbitration if, and only if, the parties actually agreed to arbitrate those disputes.” The Court reiterated that consent is a threshold matter because “a party who has not agreed to arbitrate will normally have a right to the court's decision about the merits of its dispute.” Accordingly, “courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” The Court explained that these principles govern the parties' dispute about whether they had agreed to send the given dispute to arbitration, “and, per usual, that question must be answered by a court.”

The Court did not accept that under the doctrine of severability, “an arbitration or delegation provision is severable from the remainder of the contract,” and “unless the challenge is to the arbitration or delegation clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.” The Court reasoned that the severability principle “does not require that a party challenge only the arbitration or delegation provision. Rather, where a challenge applies equally to the whole contract and to an arbitration or delegation provision, a court must address that challenge.”

The Court disagreed that its ruling would invite “chaos by facilitating challenges to delegation clauses.” The Court explained that its holding would have no implications for cases where the parties agreed to only one contract, and that contract contains an arbitration clause with a delegation provision. But 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, as a contrary ruling would “impermissibly elevate a delegation provision over other forms of contract.'”

WHAT THIS MEANS

This narrow decision is yet another example of the Court's continued emphasis on the contractual nature of arbitration. Arbitration agreements are contracts, and the courts will interpret them according to the rules that govern contracts—not through any special rules regarding arbitration.

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Authors

Photo of Linda T. Coberly

Linda T. Coberly

Photo of Thania Charmani

Thania Charmani