SCOTUS To Weigh Whether A Court Or Arbitrator Should Decide If A Subsequent Agreement Narrows A Preceding Arbitration Agreement Containing A Delegation Clause – Arbitration & Dispute Resolution

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The United States Supreme Court recently granted a petition for
certiorari to review a Ninth Circuit decision and resolve the issue
of whether, when parties enter into an arbitration agreement with a
delegation clause, the court or an arbitrator should decide whether
that arbitration agreement is narrowed by a later contract that is
silent as to arbitration and delegation. A delegation clause
specifies that an arbitrator, and not a court, will decide
threshold questions about the arbitration agreement, such as the
applicability, scope and validity of the agreement. There is
currently a circuit split on the enforceability of delegation
clauses: First and Fifth Circuits compel arbitration under the
delegation clause so that an arbitrator can decide whether the
second contract narrowed the arbitration agreement in the first
contract, while the Third and Ninth Circuits refuse to enforce
delegation clauses where a second contract narrows an earlier
arbitration agreement. This is the second time that the Supreme
Court has addressed Petitioner Coinbase’s arbitration clause;
in the prior case it reversed the Ninth Circuit, holding that an
appeal from a denial of a petition to compel arbitration
automatically stays proceedings below.

Procedural History

In Coinbase v. Suski, Coinbase users filed a putative
class action in the Northern District of California relating to a
sweepstakes run by Coinbase and co-defendant Marden-Kane Inc. when
Coinbase began offering the cryptocurrency dogecoin. The
sweepstakes offered entrants the opportunity to win $1.2 million in
dogecoin. To participate in the sweepstakes, entrants had to agree
to a set of “official rules,” which contained a forum
selection clause stating that California courts would have sole
jurisdiction over any controversies regarding the promotion of the
sweepstakes. Plaintiff Suski and other sweepstakes entrants alleged
that Coinbase misled them about the entry requirements for the
sweepstakes in violation of California law. Coinbase moved to
compel arbitration based on the Coinbase user agreements, which
contained an arbitration provision with a delegation clause.
Coinbase also argued that any potential dispute about the
applicability of the arbitration agreement had been delegated to
the arbitrator. Plaintiffs sought to avoid arbitration on the basis
that the sweepstakes rules’ forum selection clause had
superseded the arbitration agreement with respect to sweepstakes

In January 2022, U.S. Magistrate Judge Sallie Kim denied the
motion to compel arbitration and held that the dispute should
proceed in court. The Court held that the dispute related not to
the scope of the arbitration provision but whether the arbitration
agreement was superseded by another separate contract. Having
dispensed with the delegation clause, the Court then held that the
forum selection clause in the sweepstakes terms superseded the
Coinbase user agreements: “[b]ecause the arbitration provision
and the forum selection clause conflict, the subsequent contract
supersedes the first.”

Coinbase appealed and moved to stay proceedings pending the
resolution of that appeal. The District Court and Ninth Circuit
refused Coinbase’s request for a stay and the Supreme Court
reversed, holding that a district court must stay proceedings (see
our publication discussing this decision here). After the Supreme Court granted
certiorari on the stay issue, the Ninth Circuit issued a unanimous
published decision affirming the Court’s denial of
Coinbase’s motion to compel arbitration. The Ninth Circuit
disagreed with Coinbase’s position that the question was an
issue of the arbitration agreement’s scope that had been
delegated to the arbitrator. The Ninth Circuit held that it was a
question of the existence rather than the scope of an arbitration
agreement, which was an issue for the court to decide. The Court
held that “[b]ecause the user agreement and the [sweepstakes]
official rules conflict on the question whether the parties’
dispute must be resolved by an arbitrator or by a California court,
the official rules’ forum selection clause supersedes the user
agreement’s arbitration clause.” Further, the Ninth
Circuit explained that “[b]y including the forum selection
clause … the official rules evince the parties’ intent not to
be governed by the user agreement’s arbitration clause when
addressing controversies concerning the sweepstakes.”

Coinbase filed a petition for a writ of certiorari in June 2023
and the Supreme Court granted certiorari on November 3, 2023. It
argued that Supreme Court precedent requires enforcing delegation
clauses in arbitration agreements absent a meritorious challenge
specifically to a delegation provision, and since the subsequent
contract here did not alter or challenge the arbitration
agreement’s delegation provision, it must be enforced to allow
an arbitrator to determine whether the second contract narrowed the
arbitration agreement. This case is scheduled for argument during
the Court’s October 2023-2024 term.

Key Takeaways

This case raises the important question of who decides whether a
case belongs in arbitration or in court and gives the Supreme Court
an opportunity to provide further guidance on the application of
delegation clauses and any attacks on those clauses.

The issue of multiple, conflicting agreements arises frequently
in the consumer, employment and commercial context, as parties
revise prior agreements or add terms applicable to specific
contexts. The Supreme Court’s decision will provide welcomed
clarity on that issue.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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