SCOTUS Arbitration Argument Preview: Why Coinbase Employees’ Amici Want the 9th Circuit Affirmed

CPR Speaks last Thursday, Feb. 22, examined why business-focused amicus parties backed petitioner Coinbase Inc. in asking the U.S. Supreme Court to overturn a Ninth U.S. Circuit Court of Appeals decision that declined to compel arbitration in a disagreement between the San Francisco-based cryptocurrency platform provider and its customers.

Here, CPR Speaks analyzes the interests and arguments of groups that back the employees who originally went to a California court to avoid arbitration disputes with Coinbase over a sweepstakes.

This week, the nation’s top Court will hear oral arguments in Coinbase Inc. v. Suski, No. 23-2, on 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. Coinbase and its customers later added a sweepstakes agreement, which did not refer to arbitration.

Petitioner Coinbase contends that silence in the second consumer contract does not affect the arbitration delegation clause in the parties' original consumer contract. It maintains that the first consumer contract, the Coinbase User Agreement, which delegates disputes to arbitrators and alternative dispute resolution, should include the subsequent sweepstakes.

The three amicus briefs supporting Coinbase--representing the views of six business and free-enterprise think tanks as well as a business professor—were discussed at Lee Williams, “SCOTUS Arbitration Argument Preview: Why Coinbase Amici Want the Ninth Circuit Reversed,” CPR Speaks (Feb. 22) (available here).

Coinbase, a San Francisco based cryptocurrency platform, had 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, as noted in our Feb. 22 CPR Speaks post, 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 the return of the case this week.

There’s much more arbitration at the U.S. Supreme Court beyond Coinbase’s ADR problems. Last 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).

And there’s more to come. 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). CPR Speaks expects to highlight the amicus views to preview the Smith v. Spizzirri arguments in the spring as they are posted on the Court’s docket page.

Now, as the Coinbase Inc. v. Suski oral arguments approach, here are summaries of amicus briefs backing the respondents—David Suski, Jaimee Martin, Jonas Calsbeek, and Thomas Maher, customers who say they created personal trading accounts with Coinbase between January 2018 and May 2021--that have been submitted to the Court.

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First, an amicus curiae brief was submitted by law professors who have published extensively on arbitration, contract, and class action law, consumer contracts, civil justice, and the federal courts. They write that they “share an interest in this case because it presents novel and important questions that could significantly impact Amici’s areas of expertise and various aspects of the American legal landscape, including (among others) consumer protection, employment, class action, product liability law, and the division of responsibility between federal courts and private arbitrators.” The professors are:

• Richard H. Frankel, Associate Dean of Experiential Learning Programs and Director, Civil Litigation and Dispute Resolution Program, Drexel University, Thomas R. Kline School of Law, in Philadelphia;
• Myriam Gilles, Paul R. Verkuil Chair in Public Law at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, and
• David Horton, Martin Luther King Jr. Professor of Law at the University of California Davis School of Law in Davis, Calif.

The brief’s first argument is that the Ninth Circuit had standing to decide this matter rather than an arbitrator. The reason, they suggest, is that there was no arbitration agreement in the second agreement, and the first agreement’s delegation clause doesn’t carry the arbitration obligation to the new agreement.

They state that “under well-established principles of state contract law, this is a dispute concerning the existence of a legally cognizable arbitration agreement, not interpretation of that agreement to determine its scope.” Therefore, this matter was correctly reserved for a court and not an arbitrator. Amici cite First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), in which the Court held that “courts should look to ‘ordinary state-law principles’ of contract law” in cases such as this one.

The amici explain that under the principles of state contract law, “whether a delegation clause has been superseded by a subsequent contract between the parties concerns the delegation clause’s existence, not its scope.” (Emphasis in the brief.) They clarify that arbitration and delegation agreements are treated “just like” all other contracts by the court and “they are equally as enforceable and subject to the same formation and execution inquiries.”

The brief, in fact, ends on this point, too, warning that the existence of the arbitration obligation for the second contract needs to be in a court’s hands: “Inverting this sequence by asking the arbitrator to decide this question would create a special rule for arbitration agreements not found in the common law of contracts.”

The amici’s second argument is that the Ninth Circuit was correct in ruling against Coinbase on the question of the second sweepstakes contract superseding the original consumer agreement. They support their argument by citing several cases, including the Supreme Court’s Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 301 (2010). These cases, the brief explains, all stand for the rule that “the presumption in favor of arbitration does not apply when the question presented is one concerning the existence of a legally cognizable arbitration agreement.” (Emphasis again is the brief’s.)

The amici conclude that “because the question presented here asks whether a legally cognizable agreement to arbitrate exists—not whether the dispute at hand is within the scope of an agreement already shown to be in place between the parties,” the Court should affirm the Ninth Circuit’s holding. They claim that the superseding sweepstakes contract discharged the duties in the original arbitration agreement based on state law contract principles and, therefore, the Supreme Court should decide in favor of respondent customers.

The “Brief of Legal Scholars” is available on the U.S. Supreme Court website here.

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Public Citizen is a Washington, D.C., consumer advocacy organization that appears on behalf of its members and supporters nationwide before Congress, administrative agencies, and the courts. Public Citizen focuses on issues, including enactment and enforcement of laws protecting consumers, workers, and the public. Public Citizen has long been an advocacy presence in court cases at all levels and regarding legislation about the enforcement of mandatory predispute arbitration agreements.

Public Citizen’s first argument is that the Ninth Circuit, and not an arbitrator, should decide arbitrability. “Reversal of the decision below,” the brief states, “would require courts to force parties to arbitrate under a delegation clause without first determining that the delegation remained applicable to the case.”

The brief states that there is a “contract-formation challenge” when a party asserts that it did not enter into an agreement at all or when a party asserts that a subsequent agreement supersedes a contract in its entirety. The question of contract formation is decided by the court. So, the brief explains, “when, as in this case, a party argues that a later agreement supersedes or modifies a delegation clause in a way that makes the clause inapplicable to the arbitrability dispute presented by a case, a court may not enforce the delegation clause without first resolving that argument.”

Public Citizen then expresses its agreement with the Ninth Circuit’s analysis of this case. It states, “if a later contract between two parties supersedes an earlier arbitration agreement in its entirety, or modifies both the substantive arbitration agreement and the embedded delegation clause, the later contract may be grounds for holding both the delegation clause and the broader arbitration agreement inapplicable to a particular dispute covered by the later agreement.”

The Public Citizen brief furthers its support by describing how a later agreement can “use any particular form of words to supersede or modify the delegation clause.” Public Citizen explains that delegation clauses are disfavored because they “depart from the ordinary expectations of parties to an arbitration agreement.” Amicus states that the Supreme Court has held that “an agreement to arbitrate arbitrability may be found only if a contract clearly expresses such an agreement,” but adds that “[t]here is no comparable basis for requiring a clear statement to supersede a delegation clause.” (Emphasis in the brief.)

Therefore, the Ninth Circuit was correct when holding that the sweepstakes contract superseded the arbitration agreement, according to the amicus brief.

The brief goes on to contest Coinbase’s interpretation of the severability jurisprudence in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 402–04 (1967) and its progeny—the idea that the inquiry of the validity of an arbitration clause is independent from the inquiry of the contract itself.

The contract, the brief states, needs a valid arbitration clause to sever. “[B]efore ordering compliance with any arbitration provision, a court must consider whether a party is subject to an agreement to arbitrate the issue as to which an opposing party seeks to compel arbitration,” the brief explains, adding, “Simply put, a later contract is a specific basis for refusing enforcement of any and all parts of a previous contract that it supersedes.”

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

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The American Association for Justice is a national bar association established in 1946—the former Association of Trial Lawyers of America—that advocates for, among other things, the right to jury trials for individual litigants. The AAJ has appeared as amicus on the plaintiffs’ side in many Supreme Court cases. It claims an interest in the case because it is concerned that Coinbase’s theory of the case would cause an imbalance between arbitration contracts and all other contracts.

The AAJ argues that the question presented should be resolved by California’s state law because “California contract law makes plain that a new written contract supersedes conflicting provisions in an earlier one.” The brief cites the Federal Arbitration Act, which it notes establishes the “fundamental principle that arbitration is a matter of contract.” See 9 U.S.C. § 2; quoting Rent-A-Center, West Inc. v. Jackson, 561 U.S. 63, 74 (2010). The AAJ says that Coinbase’s argument for the first contract’s delegation clause fails on basic contract principles.

As a matter of contract and not just a matter of arbitrability, the lower courts had standing to decide on the case, the brief argues, and the matter should not have been delegated to an arbitrator. The AAJ further supports the use of California state law by claiming that the Supreme Court normally defers to interpretations of state law.

Next, the AAJ brief explains that the sweepstakes in the second consumer contract were available to existing customers and potential customers, but the sweepstakes contract didn’t indicate that existing customers were subject to different rules than potential customers.

Without any differentiation, the contract “neither contained nor referred to an arbitration provision or a delegation clause. Instead, it required entrants to resolve disputes in state or federal court in California and to waive any objection to personal jurisdiction should Coinbase sue them.”

Because potential customers could sign the sweepstakes contract while not being bound to the arbitration agreement or the delegation clause, the AAJ suggests it doesn’t make sense for the petitioner to claim that the delegation clause applied to the sweepstakes contract:

Coinbase acknowledges that those who agreed to the Official Rules but were never a party to the first contract would not be covered by any arbitration agreement. Yet, it illogically argues that the first contract’s delegation clause controls the second contract for some entrants, even though the second contract provides no basis for that understanding and is lacking, as California law requires, clear and unequivocal notice that an earlier agreement governs any part of the new transaction.

The AAJ asserts that “Coinbase’s position relies on an earlier contract that plainly does not govern this dispute under ordinary California contract principles similar to those that exist in all States.” The amicus brief explains that “Coinbase’s approach would put arbitration in a favored position rather than on an equal footing with how all contracts work” because parties that agreed to arbitration would be bound by the delegation clause in “all subsequent contracts, even if the new contract is entirely self-contained and there is no mention of the original contract.”

The brief also argued that the ambiguity in the delegation clause must be construed against the petitioner, and the customer-respondents didn’t need to challenge the delegation clause to remain in court. For these reasons, the AAJ concludes that the Supreme Court should find for the respondents and decline the petitioner’s arguments.

The AAJ 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.

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