Coinbase, Inc. v. Suski

Issues

Can a subsequent agreement to a platform’s contest terms alter the terms of an arbitration delegation clause originally agreed to in the platform’s general user agreement?

Oral argument:

February 28, 2024

Court below:

United States Court of Appeals for the Ninth Circuit

Petitioner Coinbase seeks to reverse the Ninth Circuit’s ruling that a subsequent contract regarding the terms for a contest with the contest platform’s registered users limits the scope of the platform’s general user agreement on arbitration and how that scope is determined. The parties dispute whether original agreement’s text forecloses subsequent modification and whether the Federal Arbitration Act and California contract law govern that determination. The outcome of this case carries implications for contract predictability, the authority of arbitrators, and the power of the Federal Arbitration Act.

Questions as Framed for the Court by the Parties

Whether, where parties enter into an arbitration agreement with a delegation clause, an arbitrator or a court should decide whether that arbitration agreement is narrowed by a later contract that is silent as to arbitration and delegation.

Facts

In January 2018, David Suski opened a Coinbase account. Suski v. Marden-Kane. Upon opening his account, Suski agreed to the arbitration provision listed in the Coinbase User Agreement. Suski v. Coinbase. The User Agreement’s arbitration provision contained a delegation clause, which delegated the authority to decide any disputes arising out of the arbitration agreement to a neutral arbitrator, rather than a court or judge. Marden-Kane.

In June 2021, David Suski participated in Coinbase’s Dogecoin Sweepstakes (“Sweepstakes”), which offered various prizes to participants. Coinbase. To participate, Suski checked a series of boxes in agreement with provisions of the Sweepstakes Official Rules. Marden-Kane. One of those boxes referenced an “opt-in” provision, stating that Suski fully and unconditionally agreed to the Sweepstakes Official Rules by checking it. Coinbase. The Sweepstakes Official Rules further stated that they would be binding and final on all matters relating to the Sweepstakes. Marden-Kane. The Sweepstakes Official Rules importantly contained a forum selection clause, which stated that California courts would exclusively resolve any controversies over the Sweepstakes and accordingly grant awards. Marden-Kane.

In 2022, Suski sued Coinbase, alleging various claims, including that Coinbase had falsely advertised its Sweepstakes and that the Sweepstakes were an illegal lottery. Marden-Kane. In response to Suski’s claim, Coinbase sought arbitration. Coinbase. In its motion to that effect, Coinbase argued that the arbitration provision in Coinbase’s User Agreement should dictate which arbitrator would decide the issue because the Sweepstakes Official Rules apply only to non-Coinbase users. Marden-Kane. Suski, in contrast, argued that the Sweepstakes Official Rules should apply, and that the judiciary should decide Suski’s claims because they superseded the User Agreement. Marden-Kane. The District Court for the Northern District of California agreed with Suski and denied Coinbase’s motion, finding that the conflict between the two contracts made it unclear whether an arbitrator should decide on Suski’s claims. Marden-Kane. The Court further held that, because the Sweepstakes Official Rules did not explicitly state that they apply only to non-Coinbase users, they should determine the forum for lawsuits. Marden-Kane.

On appeal to the Ninth Circuit, Coinbase argued again that the User Agreement should control both issues. Marden-Kane. Coinbase further claimed that because Ninth Circuit precedents have held that conflicting terms in separate contracts should to be consistent with one another, here too, the Ninth Circuit should narrowly interpret the Sweepstakes Official Rules so that they do not supersede the User Agreement. Marden-Kane. Suski countered that the central issue was whether an agreement existed at all. Marden-Kane. Suski further argued that in Goldman Sachs v. City of Reno, the issue related to conflicting contracts addressed by the Ninth Circuit was whether an agreement existed, not its scope. Marden-Kane. The Ninth Circuit rejected Coinbase’s argument, holding that the dispute was not about the scope of the Sweepstakes Official Rules but whether one contract superseded the other. Coinbase. The Ninth Circuit further noted that, unlike previous cases which presented conflicting terms within a single contract, this case concerned two separate contracts which were irreconcilable. Coinbase.

The United States Supreme Court granted certiorari on November 3, 2023. Coinbase Inc. v. Suski.

Analysis

FEDERAL ARBITRATION ACT AND DELEGATION CLAUSES

Coinbase asserts that the severability provisions in the Federal Arbitration Act (“FAA”) protect arbitration clauses, protections courts have traditionally honored. Brief for Petitioner, Coinbase, Inc. at 20. Here, Coinbase asserts that, under the FAA, the validity of an underlying contract is irrelevant to the validity of an arbitration agreement, and thus a court cannot look into the making of the contract to determine the validity of the arbitration agreement within it. Id. at 22–23. Instead, Coinbase contends, a court must isolate the arbitration clause from the rest of the contract and then determine whether the contracting parties meant to agree to it. Id. at 21. Coinbase argues that this separate analysis is consistent with the policy justifications behind the FAA by protecting the parties’ freedom to contract as they choose without a court interfering with their agreement. Id. at 24.

Coinbase argues that a court would thus only be the proper venue for disputes over the validity of the delegation clause in the User Agreement. Id. at 28–29. Coinbase further asserts that Suski’s challenge of the delegation clause’s application to the contest terms properly belongs in arbitration. Id. Coinbase contends that the dispute properly belongs in arbitration because there is a judicial preference for arbitration under FAA jurisprudence. Id. at 24.

Suski counter that Coinbase’s position would lead to new judge-made rules that would contradict the text of the FAA. Brief for Respondent, David Suski et al. at 35. Suski contends that such contradiction would decrease the certainty of contract interpretation for future parties attempting to modify a contract’s arbitration clauses with a subsequent contract. Id. Suski points to voluntary litigation as a more common form of arbitration agreement modification, asserting that it implicates the same modifications of arbitration rights that voluntary litigation modifies. Id.

Suski argues that the plain language of the Sweepstakes Official Rules, as interpreted by canons of interpretation set out by the FAA, indicates that the subsequent agreement modified the User Agreement. Id. at 21. Suski asserts that, to serve the FAA’s primary objective, consent to arbitration is required, and that to respect the rights of parties, they must find such consent before authorizing arbitration. Id. Suski further asserts that there is no preemption dispute, where federal contract law would supersede state contract law under the law. Id. This, Suski maintains, is because the FAA does not purport to alter any state contract laws, and thus a court must first look to state law to interpret the delegation clause. Id.

CALIFORNIA STATE CONTRACT LAW

Coinbase argues that because the delegation clause in the User Agreement requires arbitration for any disputes about the arbitration clause itself and was not challenged under California contract law, an arbitrator must decide disputes about its validity. Brief for Petitioner at 27. Coinbase further argues that, even if the Sweepstakes Official Rules were contested under California contract law, the later contract was a “modification” to the existing contract. Id at 31-32. Accordingly, Coinbase asserts, because the contest term does not speak to the delegation clause or anything about who interprets the arbitration clause, the User Agreement remains unmodified with respect to arbitration and thus applies to the sweepstakes. Id. at 32–33. Coinbase also adds that the arbitration agreement contained industry-standard language. Id. at 28. Finally, Coinbase asserts that California law favors this construction because it avoids the absurdity of applying the delegation clause to users who sign up for an account before entering the contest, yet not applying to those who enter the contest by mail before signing up for an account. Id. at 33–34.

Suski counters that Coinbase’s argument wrongly relies on the canon that the most recent contract rules govern because no canon can be determinative under California contract interpretive rules. Brief for Respondent at 37–38. As a result, Suski asserts, no absurdity in varying application would result because the contracts would exist side-by-side, each having their own respective dispute resolution mechanisms. Id. at 38. Suski contends this approach is further supported by the plain language of the contract. Id. at 25. In the contest terms, Suski notes that the Sweepstakes Official Rules give courts “SOLE JURISDICTION” over “ANY AND ALL OBJECTIONS,” “FOR ANY REASON,” with California being the applicable law. Id. at 26. Suski argues that the plain meaning of these contest terms, which do not mention arbitration, indicate Coinbase’s intent for a court of law, not arbitration, to be the proper venue for resolving disputes regarding this contract. Id. at 27. Suski asserts this view comports with another “canon” of contract interpretation, which states that a contract’s express provision negates an inference that the parties intended something else. Id. at 29. Lastly, Suski contends that California contract law favors later agreements over earlier agreements because parties could not have contemplated a future contract at the first contract’s inception. Id. at 23–33.

Discussion

CONTRACT PREDICTABILITY AND ARBITRATION EFFICIENCY

The Chamber of Commerce of the United States of America et al (“Chamber”), in support of Coinbase, assert that courts should favor resolving disputes via arbitration clause over courts because the parties expected the arbitration clause to be honored when contracting. Brief of Amici Curiae Chamber of Commerce of the United States of America et al. at 18. The Chamber notes that businesses frequently enter into multiple contracts which often define the arbitration terms differently, and that the purpose of these arbitration terms is to reduce the formality of litigation and achieve expedited decisions. Id. at 13, 18. The Chamber argues that subjecting these contracts to judicial discretion increases uncertainty for business and could incentivize frivolous lawsuits attempting to circumvent the arbitration clause. Id. at 14.

The American Association for Justice (“AAJ”), in support of Suski, asserts that parties can always insert a clear and unequivocal intent to supersede the previous contract. Brief of Amicus Curiae American Association for Justice at 23. AAJ points out that Coinbase had standardized the contract for the Sweepstakes. Id. AAJ contends that there is no incentive for Suski to frame this issue as contract formation to avoid the arbitrator because Coinbase could have blocked it easily by amending the standardized contract. Id. at 24–25. AAJ further notes that because the second contract does not mention the first contract at all, there was no agreement to modify the first, and therefore the parties could not have expected to arbitrate the issues. Id. at 27–29. AAJ argues that courts should thus preserve the expectations of the parties without inventing rules to force arbitration over litigating in the court. Id. at 26.

EXPANDING THE ARBITRATOR’S AUTHORITY OVER DETERMINING ARBITRABILITY

The Atlantic Legal Foundation (“Foundation”), in support of Coinbase, asserts that traditional litigation costs are higher compared to streamlined arbitration. Brief of Amicus Curiae Atlantic Legal Foundation at 9. The Foundation argues that the central purpose of an arbitration clause is to expedite the decision process and thus provide a cheaper alternative to traditional litigation. Id. at 6. The Foundation also contends that the primary benefit of arbitration is informality and having an expert arbitrator who can quickly decide on the issues. Id. The Foundation asserts that these policies support delegating arbitrability issues to the arbitrator. Id. at 9. The Foundation further notes that, to attain this goal, many European countries have allowed the arbitrator to decide whether a dispute falls under its authority. Id. at 8.

Public Citizen, in support of Suski, responds that an arbitration agreement that does not clarify the scope of arbitration does not ordinarily delegate the power to determine the scope to the arbitrator. Brief of Amicus Curiae Public Citizen at 13. Public Citizen contends that to invoke the arbitrator’s power, there must be a clear statement to do so in the agreement. Id. Public Citizen argues that if the parties do not present a clear statement, it does not satisfy the threshold requirements of the FAA. Id. at 6. Public Citizen thus contends that unless the parties have shown clear intent, an arbitrator cannot decide whether they can decide on an issue. Id. at 14.

PRINCIPLES OF CONTRACT LAW AGAINST THE FEDERAL ARBITRATION ACT

Anthony Michael Sabino, in support of Coinbase, asserts that the primary purpose of the FAA is to enforce agreements to arbitrate. Brief of Amicus Curiae Anthony Michael Sabino at 3-4. Sabino argues that the FAA’s mandatory language requires courts to enforce the arbitration agreement without discretion. Id. at 5–6. Anthony contends that courts should respect the intention of the parties when the parties have voluntarily consented to the arbitration agreement. Id. at 9. Anthony further highlights that one of Congress’ central goals in enacting the FAA was to prevent courts from refusing to enforce arbitration agreements. Id. at 10–11. Anthony argues that withholding the decision to arbitrate from the arbitrator would further contradict the strong federal policy of leaving parties to freely contract arbitration clauses. Id. at 11, 15.

Legal Scholars, in support of Suski, assert that the FAA treats arbitration contracts equally to all other contracts and therefore general principles of contract law should apply. Brief of Amici Curiae Legal Scholars at 11. Legal Scholars argue that under contract law, the court has the authority to predetermine whether parties have consented to the terms. Id. at 12. Legal Scholars point to the fact that the FAA explicitly grants the authority to courts to adjudicate whether an agreement existed. Id. at 13. Legal Scholars therefore contend that the threshold question of whether arbitration exists at all should be answered first to avoid ambiguity. Id. at 14–15. Legal Scholars argues that an arbitrator answering these questions would carve out an exception to contract law and diverge it from common law. Id. at 15.