To hear the words “Coinbase” and “Supreme Court” in the same breath likely inspires thoughts of the justices jousting over cryptocurrency. But this week’s decision in Coinbase v. Suski is a reminder that even in our clever new era, old principles of contract law often hold sway.
The question before the court at first blush seems simple. Back in 2021, Coinbase ran a sweepstakes offering prizes paid in Dogecoin. The plaintiffs, who participated in the competition, subsequently filed suit in federal court in California, claiming that the sweepstakes’ rules violated that state’s laws. Coinbase replied that under the terms of the User Agreement, which the plaintiffs accepted, all such disputes must go to arbitration.
One would have expected that to be the end of the matter. Once upon a time, courts looked with hostility on mandatory arbitration clauses — many scholars and activists still do — but in recent decades the Supreme Court has been staunch in upholding the position that the Federal Arbitration Act means what it says: If there’s a valid arbitration clause, it’s binding.
In the Coinbase case, however, the justices unanimously refused to order that the dispute be arbitrated.
How is this possible?
Because, as Justice Ketanji Brown Jackson explains in a unanimous opinion, there was not just one contract between Coinbase and the sweepstakes entrants; there were two. And between the two lay a certain inconsistency. Call it bad lawyering, call it a silly oversight, call it a bit of minutiae that should never have reached the Supreme Court. But there were two contracts, and the justices had to figure out how they worked together.
Why were there two contracts? The first was the User Agreement to which the company’s customers had to agree. The arbitration clause provided that even questions about the clause itself — “including the enforceability, revocability, scope, or validity” — were to “be decided by an arbitrator and not by a court or judge.” The second contract was the “Official Rules” that governed the sweepstakes, and to which all entrants had to agree. Those rules said nothing about arbitration. They did, however, include what is known as a forum selection clause, providing that California courts (federal or state) would have “sole jurisdiction of any controversies” between entrants and the company regarding the sweepstakes.
Oops. Users are required to arbitrate rather than sue, but the California courts have exclusive jurisdiction over any controversies arising from the sweepstakes. So does that mean that the arbitrator gets to decide whether the entrants can sue (Coinbase’s position) or that the courts get to decide whether the plaintiffs must arbitrate (the plaintiffs’ position)?
The contracts professor in me ventures to suggest, as gently and respectfully as possible, that the company’s lawyers should have seen this problem coming and avoided it by ensuring that the two contracts reflected a single, clear proposition.
Nevertheless, here we are.
In her mercifully short opinion — why can’t they all be six pages? — Justice Jackson draws a useful distinction among what she calls first-order disputes (basically, which party wins); second-order disputes (have the parties agreed to arbitrate?); and third-order disputes (who gets to decide whether the parties have agreed to arbitrate?). Coinbase v. Suski is a dispute of the third order. Had the parties agreed unambiguously that disputes over whether arbitration should be decided by the arbitrator, that agreement would be fully enforceable, and the lawsuit would be thrown out.
But they didn’t. Here’s Justice Jackson: “When we home in on the conflict between the delegation clause in the first contract and forum selection clause in the second, the question is whether the parties agreed to send the given dispute to arbitration — and, per usual, that question must be answered by a court.”
And that’s that. Two separate contracts, two separate means to resolve disputes — a court, not an arbitrator, decides which governs.
And therein lies the lesson for other companies. That a company will have multiple contracts with the same customers is neither unusual nor, intrinsically, any sort of problem. The lesson of Coinbase, however, is that no matter the technological wizardry of the age, if those agreements are in conflict, traditional principles of contract law will apply. A judge will have to sit down and read the documents and figure out how to make them work together.
That has the potential to complexify considerably how firms of all kinds deal with their customers. But does it, as Coinbase warned, “invite chaos”? The justices rejected that argument, but even had they been persuaded, the problem arose from a situation created by Coinbase. The two contracts should have worked in tandem, giving the firm’s customers exactly the same information. If Coinbase wanted arbitration to be the sole means for adjudicating disputes, that should have been clear in every single document provided to users that some court, somewhere might decide was part of a contract.
That’s how those old-fashioned principles work.
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