SCOTUS Resolves New (Fourth) Layer of Arbitration Contract Disputes

The US Supreme Court gave us another arbitration decision on May 23 — the second in the span of a week. This one is Coinbase v. Suski, which poses the following question: “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.” In his concurring opinion, Justice Gorsuch gave what seems like the obvious answer: “it depends on what the parties have agreed.” And, as the unanimous opinion of the Court holds, determining “what the parties have agreed” to — that is, what their contract says on the question of delegation — is a threshold issue for the courts.

Today’s decision from the Court arises from a class action complaint filed in California federal court. The defendant company and representative class plaintiff entered into two contracts: (1) a user agreement containing an arbitration clause, which delegated the issue of arbitrability to an arbitrator, and (2) a second contract providing that “any controversies regarding [a particular sweepstakes] promotion” must be tried in California state or federal courts. The defendant moved to compel arbitration, pointing to the initial user agreement and its delegation clause. The district court denied the motion. Holding that the second contract superseded the first, the trial court said the decision over each contract’s validity was one that must be decided by a court before any arbitrability questions could be decided. The Ninth Circuit affirmed the district court’s decision.

Affirming the Ninth Circuit, the Supreme Court explained that it had previously “addressed three layers of arbitration disputes: (1) merits, (2) arbitrability, and (3) who decides arbitrability.” But, unlike those prior arbitration matters, the present “case involves a fourth [arbitration dispute]: What happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability?” In answering that question, the Court reasoned that traditional contract principles must govern. If a decision is to be made whether the parties agreed to delegate the question of arbitrability, an initial threshold question must be resolved as to whether the delegation clause from the parties’ agreement is even valid. That threshold question is one of contract that must be decided by a court, the Supreme Court concluded. “[W]here, as here, 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. To hold otherwise would be to impermissibly ‘“elevate [a delegation provision] over other forms of contract.'” 

The Court’s decision ultimately came down to a fundamental principle of arbitration. Parties are free to contract into arbitration, but only as to matters that are agreed, and it is courts that must decide what the parties contracted for.