SCOTUS Arbitration Argument Preview: Why Coinbase Petitioner's Amici Want the 9th Circuit Reversed

The U.S. Supreme Court will hear oral arguments for Coinbase Inc. v. Suski, No. 23-2, next Wednesday, Feb. 28, the Court’s second arbitration matter in eight days. The case returns to the Court on the elusive arbitration topic of delegation clauses after it was the subject of an opinion on another arbitration matter last term.

The main issue in Suski is: Where parties enter into an arbitration agreement with a delegation clause, should an arbitrator or a court decide whether that arbitration agreement applies to a later, related contract that is silent on arbitration and delegation?

A delegation clause in an arbitration contract usually designates that matters in dispute be sent to an arbitrator to decide.  But sometimes parties reserve matters for courts and judges, and so-called carve-outs, as well as silence, has been an arbitration topic that has appeared before the Court.

In Suski, the company and its customers entered into a “user agreement,” which contained an arbitration provision with a delegation clause. They later had a sweepstakes agreement, which didn’t refer to arbitration. Petitioner Coinbase contends that silence in the second consumer contract doesn’t affect the arbitration delegation clause in the parties' original consumer contract.

Coinbase, a San Francisco based cryptocurrency platform, filed a motion to compel arbitration, which a California U.S. District Court denied. The Ninth U.S. Circuit Court of Appeals panel affirmed the district court and made distinctions between the arbitration delegation clause in Coinbase’s User Agreement and its forum selection clause in the Sweepstakes Official Rules. For links and more background on the case, see Lee Williams, “Who Decides? Coinbase Returns to the Supreme Court to Examine Arbitration Delegation” CPR Speaks (Sept. 29, 2023) (available here).

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Coinbase v. Suski arises in an active U.S. Supreme Court arbitration environment.

In the previous 2022-2023 Court term, a related case, Coinbase v. Bielski, 143 S.Ct. 1915 (2023) (available at https://bit.ly/48llsFS) addressed whether litigated matters are stayed while arbitration orders are on appeal.  The Court held 5-4 that a stay is automatic under the Federal Arbitration Act and the Federal Rules of Civil Procedure. Russ Bleemer & Cenadra Gopala-Foster, “Supreme Court: While a Denial of Arbitrability Is Appealed, a Stay of Litigation Is Mandatory,” CPR Speaks (June 23, 2023) (available here). The matter involving Suski reached the Court at the same time, but the Bielski opinion dismissed it as improvidently granted, paving the way for next week’s return.

Earlier this week, on Tuesday, Feb. 20, the Court heard Bissonnette v. LePage Bakeries Park St. LLC, No. 23-51, a fight over the extent of the exemption from arbitration provided in FAA Sec. 1.  For details on the oral argument and links to background, see Lee Williams, “Tuesday's Supreme Court Federal Arbitration Act Exemption Arguments,” CPR Speaks (Feb. 20) (available here).

On April 22, the Court will hear Smith v. Spizzirri, No. 22-1218 (the Court’s case docket is available at https://bit.ly/48wt09w), a third current-term arbitration case, on whether FAA Sec. 3 requires district courts to stay a suit pending arbitration, or whether district courts have discretion to dismiss when all claims are subject to arbitration. For background, see Lee Williams, “Stay or Dismiss? The Supreme Court Grants Cert on Its Third Arbitration Case This Term,” CPR Speaks, (Jan. 15, 2024) (available here).

As the oral arguments approach, amicus briefs on both sides have been filed. Below are summaries of briefs backing the petitioner, Coinbase, that have been submitted to the Court (CPR Speaks will soon post summaries of the respondent’s amicus filings).

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Established in 1977, the Atlantic Legal Foundation (ALF) is a national, nonprofit, free market-oriented public-interest law firm that advocates for individual liberty, property rights, limited government, “sound science in judicial and regulatory proceedings, and effective education, including parental rights and school choice.” ALF is a frequent amicus participant in arbitration cases at the nation’s top Court.

The ALF’s argument begins by noting that there are frequent disagreements on whether parties are bound by arbitration agreements, and the Court’s precedent has shown that an arbitrator can decide whether an agreement is applicable in a particular matter. “Parties to arbitration agreements often disagree about ‘whether an arbitration clause in a concededly binding contract applies to a particular type of controversy.’ Howsam v. Dean Witter Reynolds Inc., 537 U.S. 79, 84 (2002). This Court has repeatedly held that parties may delegate these arbitrability questions to the arbitrator. See [Henry Schein Inc. v. Archer & White Sales Inc., 139 S.Ct. 524, 527, 530 (2019)]; Rent-A-Center, West Inc. v. Jackson, 561 U.S. 63, 68–69 (2010); First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995).”

Next, the ALF argues the parties’ delegation clause is supported by the FAA’s intent. “An arbitration agreement with a delegation clause ‘permits a single decisionmaker to make efficient decisions both as to arbitrability and as to the merits of the dispute,’ . .  . consistent with the FAA’s aim of ‘affording parties discretion in designing arbitration processes.  . . . ’” (Citations omitted.)

The brief argues that having a delegation clause allows parties to develop efficient and streamlined procedures tailored to a particular type of dispute. By aligning delegation clauses with the FAA’s intent, the ALF suggests that the delegation clause in this case should have been considered more powerful.

The ALF returned to the 2019 Supreme Court decision in Henry Schein, which held that “[w]hen the parties’ contract delegates the arbitrability question to an arbitrator, . . . a court possesses no power to decide the arbitrability issue.” The ALF explains that because the lower court in Suski did not honor the parties’ delegation clause, the Ninth Circuit violated the parties’ arbitration agreement and “subjected the parties to the very type of threshold litigation they contractually agreed to avoid.”

The ALF brief is available on the U.S. Supreme Court website here. [Editor’s note: The ALF brief cites Philip J. Loree, Jr., Schein’s Remand Decision Goes Back to the Supreme Court. What’s Next? 38 Alternatives to High Cost Litigation 54 (2020), which is published by the CPR Institute, and which hosts this blog.] 

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Amicus participant Anthony Michael Sabino is an attorney and a professor in the Department of Law at St. John’s University’s Peter J. Tobin College of Business in Queens, N.Y., who claims a professional and scholarly interest in the proper application and development of the law in arbitration. He filed the brief under his own name, as principal in the Mineola, N.Y., law firm of Sabino & Sabino.

Prof. Sabino argues that the arbitrator, and not a court, should decide whether an arbitration agreement delegating arbitrability decisions is narrowed by a later contract that is silent as to arbitration and delegation. He cites the FAA and previous Supreme Court cases to support his argument.

He argues that “reversal is justified for reason of the text of the Federal Arbitration Act, the strong federal policy favoring arbitration and the lengthy and consistent line of precedents upholding that ideal.” He cites FAA Section 2, which states, “The statute mandates that a written provision in a contract which calls for the arbitration of controversies “shall be valid, irrevocable, and enforceable.” 9 U.S.C. § 2 (emphasis is the brief’s). Because the statute encourages that arbitration is irrevocable and enforceable, Sabino argues that the petitioners and respondents are bound by their initial delegation clause and an arbitrator should be deciding arbitrability in the dispute over the second contract dealing with the sweepstakes.

On his statutory argument, Sabino references previous Supreme Court cases that he perceives to be consistent with his FAA interpretation. He cites cases like Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), and Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), highlighting that the FAA’s plain language “evinces a clear legislative intent to prohibit judicial obstructionism to arbitration.”

The brief maintains that the Court’s previous holdings read in context with the FAA should delegate the power to decide arbitrability to an arbitrator where, like in this case, the parties have a contract with a delegation clause.

The Sabino brief is available on the U.S. Supreme Court website here.

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Four national business organizations based in Washington, D.C., which state that their members and affiliates regularly rely on arbitration agreements, teamed up for a brief with a New York state business group in supporting Coinbase for returning the arbitrability decision in the case to a tribunal rather than a court.

• The U.S. Chamber of Commerce is a regular presence among Supreme Court arbitration amicus filers. It is the world’s largest business federation, representing about 300,000 direct members and says that it indirectly represents the interests of more than three million companies and professional organizations.
• The American Bankers Association says it is “the voice of the nation’s $23.4 trillion banking industry.” It advocates on behalf of its member banks on policy issues and through amicus curiae briefs.
• The Cato Institute is a libertarian think tank founded in 1977 “dedicated to advancing the principles of individual liberty.” Cato’s 35-year-old Robert A. Levy Center for Constitutional Studies promotes “the principles of limited constitutional government.”
• American Tort Reform Association members include businesses, corporations, municipalities, associations, and professional firms “that have pooled their resources to promote reform of the civil justice system with the goal of ensuring fairness, balance, and predictability in civil litigation.” Its members have a financial interest in restricting civil litigation.
• The Business Council of New York State Inc., serves as the statewide chamber of commerce and manufacturing association in Albany, N.Y. It advocates for employers on policymaking.

The amici--and the business community more broadly—say they have an interest in ensuring that businesses can rely upon settled arbitration precedent and the resultant predictability and stability of enforceable arbitration agreements.

Their argument for reversing the Ninth Circuit holding is that the lower courts looked at the wrong issue in this case. The amici claim that while the lower court examined this matter as a contract formation issue, it should have been viewed it as a scope issue—the extent of the arbitration clause rather than its existence. The brief states, “Because the arbitration agreement concededly is in effect for some matters, the only question is one of scope: whether the arbitration agreement in the original contract encompasses this particular dispute.”

The brief concedes that without a delegation clause, the court would decide the scope of the arbitration agreement. But, the brief states, there is a delegation clause in this case. “Here, the task of resolving the scope issue was for the arbitrator. There is no dispute that the parties ‘clear[ly] and unmistakabl[y]’ delegated ‘threshold arbitrability questions to the arbitrator.’ Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530 (2019).”

The brief goes on to explain that courts must “respect the parties’ decision as embodied in the contract” and allow the arbitrator to determine arbitrability, again quoting Henry Schein.

The amici state, “If the parties here had entered into their contracts in reverse order—with the arbitration agreement coming second—there could be no issue of that agreement’s validity. But the question would be the same: whether the arbitration agreement’s scope encompasses this particular dispute.”

They also argue that extended litigation--like in Suski--is what arbitration agreements and the FAA should prevent. Due to the lower courts looking at formation rather than the agreement’s scope, however, the parties are now subject to time-consuming litigation.

Finally, Amici conclude that “even if the court of appeals were correct to address the issue as a question of contract formation that must be decided by a court, it still reached the wrong outcome.” The Ninth Circuit should not have permitted the existence of a forum-selection clause in the sweepstakes agreement to supersede the delegation provision, the brief argued.

The amici’s brief is available on the U.S. Supreme Court website here.

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The author, a second-year student at the Howard University School of Law in Washington, D.C., is a full-year CPR intern as part of CPR’s consortium program with Howard Law’s ADR program. Alternatives to the High Cost of Litigation Editor Russ Bleemer contributed to the writing and reporting of this post.

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