On November 3, 2023, the United States Supreme Court granted certiorari and agreed to hear the Ninth Circuit’s decision in Coinbase Inc. v. Suski. The Supreme Court is expected to review the Ninth Circuit’s decision ruling that Coinbase’s dispute with its cryptocurrency users is to be resolved by the Court and not via arbitration.
Coinbase’s User Agreement provides that any dispute between one of the largest cryptocurrency exchange platforms and its users will be resolved through arbitration and not through the courts. A delegation clause in the User Agreement also stated that all issues surrounding the enforceability or validity of the agreement will be decided by an arbitrator and not by a court. Following allegations that Coinbase misled its users regarding the ability to enter into a 2021 Sweepstakes Agreement for free without having to trade $100 of the meme cryptocurrency on its platform, Coinbase users pursued a class-action lawsuit, arguing that Coinbase concealed the free entry option in order to drive up its trading volume.
Coinbase moved to compel arbitration, citing its User Agreement as the basis of its motion. The United States District Court for the Northern District of California acknowledged Coinbase’s User Agreement, but nonetheless held that a forum selection clause in the Official Rules section of the 2021 Sweepstakes agreement superseded the User Agreement’s arbitration provision, holding that an arbitrator may not decide the validity of the arbitration provision, thus rejecting Coinbase’s argument in support of reconciling the two documents. Coinbase appealed and asked that the court stay the proceedings until a decision was made. Both the District Court and the Ninth Circuit denied Coinbase’s request to stay the proceedings.
Coinbase filed a petition with the Supreme Court, which the Court granted, to determine whether the filing of an interlocutory appeal strips the district court of jurisdiction while a decision is pending regarding the appeal. On June 23, 2023, the Supreme Court held in Coinbase, Inc. v. Bielski, that the Federal Arbitration Act (FAA) imposes an “automatic stay” on litigation while an appellate court decides whether the parties must resolve their dispute through arbitration. In Bielski, the Supreme Court held that a district court must stay its proceedings while a decision has not been made regarding an interlocutory appeal regarding questions of arbitrability. While the Supreme Court issued a decision in Bielski, holding that the district court must stay its proceedings, it dismissed the original petition as “improvidently granted” in the case at issue.
Following the Bielski decision, the Ninth Circuit affirmed the denial of Coinbase’s motion to compel arbitration.
The issue currently presented before the Supreme Court is who decides whether a subsequent contract has ultimately narrowed an arbitration agreement which contains a delegation clause. The Circuits are split on this issue. The First and Fifth Circuits have held that the arbitrator decides issues related to the delegation clause, whereas the Third and Ninth Circuits have held that the courts should decide such issues.
It remains to be seen which direction the Supreme Court will go regarding this particular issue. Given the Supreme Court’s decision in Bielski, it is quite possible the Supreme Court will hold that an arbitrator should decide this issue. The federal right to arbitrate is a crucial right that countless businesses rely on. Thus, the Supreme Court’s decision will have a lasting impact on businesses who rely on arbitration agreements to avoid the everlasting and burdensome costs of litigation.