More from SCOTUS this morning on arbitration, but nothing really earth-shaking.

SCOTUS speaks to delegation

SCOTUS wrapped up the last of its pending arbitration cases this morning with its decision in Coinbase, Inc. v. Suski, 2024 U.S. LEXIS 2263 (May 23, 2024). In a narrowly drafted opinion, the Court addresses the resolution of a conflict between two contracts.  The parties’ User Agreement, which governed the use of the Petitioner’s cryptocurrency exchange, contained an arbitration clause, which delegated gateway issues to the arbitrator. Plaintiffs also entered into a sweepstakes which gave them the chance to in a cryptocurrency called Dogecoin; when entering the sweepstakes they accepted the Official Rules of the contest, which granted “the California courts (state and federal) . . . sole jurisdiction of any controversies regarding the [sweepstakes’ promotion. I . . .”

The issue before the Ninth Circuit, which decided the case below, and SCOTUS was whether the question of whether the forum selection clause in the Official Rules superseded the arbitration clause in the User Agreement was one for the arbitrator or the court.  Like the Ninth Circuit, the Supreme Court holds that the District Court must make that determination.  Writing for the Court, Justice Jackson frames the discussion quite simply – “Given that arbitration agreements are simply contacts, ‘”[t]he first principle that underscores all our arbitration decisions” is that “[a]rbitration is strictly a matter of consent.”’” Quoting Lamps Plus, Inc. v. Varella, 587 U.S. 176, 184 (2019)(internal citations omitted)(Brackets in opinion). As such, it falls on the court to determine which of the two conflicting contracts governs.  “’{B]efore referring a dispute to an arbitrator,’ therefore, ‘the court determines whether a valid arbitration agreement exists,’” quoting Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S. 63, 69 (2019)(Brackets in original).   Here, the Court opines, the delegation of arbitrability issues is a matter of the parties’ intent.  “[T]he question is whether the parties agreed to send the given dispute to arbitration – and, per usual, that question must be answered by a court.” (Emphasis in original). In short, SCOTUS really does nothing more than affirm the long-standing principle that the court must determine whether the parties entered into an agreement to arbitrate.  If they did not, then, there would be no delegation.  Or, as my contracts professor put it, ex nihilo nihil fit – nothing can come from nothing.

The decision does raise interesting questions as to how one challenges a delegation provision.  Coinbase argued that, under the severability principle, the Ninth Circuit should have focused solely on the delegation provision and not the contract at large.” See Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006).  The court opines that “{T}his rule 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, a court must address that challenge.” (Emphasis in original and added).  So, what does this mean in the usual challenge that the parties’ overall contract  is “unconscionable?”  Does such a challenge apply “equally” to all the provisions of that agreement?  In short, has the Court now called into question the “container concept” under which, as with Russian dolls, one needs to unpack each element contained in the agreement and raise a challenge as to them separately.  However, with an eye toward limiting the effect of the decision, Justice Sotomayor writes for the Court that the opinion only applies where the parties have agreed to incompatible provisions.  “In cases where the parties have agreed to only once 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.”

The Court declined to comment on the California state law issues related to superseding contracts, leaving that issue to the courts below.  Justice Gorsuch concurs in an opinion that does not seem to deviate from the ruling of the majority or the way in which those Justices addressed the issue.

This wraps up the arbitration docket for SCOTUS’s term.  Let’s see what they grant cert. on for next year.  The Justices seem to be interested in the issues raised by the FAA.

David Reif, FCIArb
Reif ADR
Dreif@reifadr.com
Reifadr.com