Guest Post: Tal Kastner on Coinbase, Inc. v. Suski

Contract Conflict in Coinbase
Tal Kastner, Rutgers Law School

This past spring, Coinbase, Inc. v Suski, prompted little notice amidst the headline-making Supreme Court cases at the end of the term. Coinbase involved two contracts between the cryptocurrency exchange platform and platform users. The first, a User Agreement, contained an arbitration provision specifically delegating disputes relating to arbitrability to an arbitrator “and not [to]… a court or judge.”  The second agreement, establishing the official rules to a sweepstakes for a chance to win Dogecoin, contained a forum selection provision granting California courts “sole jurisdiction over any controversies regarding” the sweepstakes. When Coinbase users brought a class action suit claiming that the sweepstakes violated several California consumer protection laws, the conflict between the agreements became evident.

A district court in California held that the sweepstakes agreement superseded the user agreement, and the Ninth Circuit Court of Appeals affirmed. In an eight-page opinion penned by Justice Ketanji Brown Jackson, the Supreme Court affirmed the Ninth Circuit’s ruling, holding that, when multiple agreements conflict on the question of who decides arbitrability, it is for a court to determine who decides.

Pointing to “[b]asic legal principles,” Justice Jackson’s opinion stresses the paradigm of arbitration as a “matter of contract and consent.”  In doing so, it emphasizes that “traditional contract principles” of consent apply to questions of the merits of arbitration disputes, of whether parties agreed to arbitrate, and of who decides arbitrability—what Justice Jackson termed the first-, second-, and third- order disputes, respectively. And, as such, the opinion explains, the same principles extend to the fourth-order question of “[w]hat happens if parties have multiple agreements that conflict as to the third-order question of who decides arbitrability.”

The characterization of arbitration disputes in Coinbase reads as, perhaps unusually, straightforwardly coherent as a matter of contract law. Prior cases involving contracts of adhesion with arbitration provisions, such as Lamps Plus, Inc. v. Varela, contorted the notion of consent to counter-intuitive ends.  In that case, the Court construed an ambiguous employment agreement in favor of the drafter to hold that a company had not explicitly consented to class-wide arbitration in the arbitration agreement it imposed on its employees. In contrast, Justice Jackson’s opinion for the Court preserves a space for judicial review of what parties agreed to by contract. 

Coinbase is also notable for addressing the issue of the uncertainty caused by the potential interaction among contracts. As I’ve analyzed, the potential for one contract to create ambiguity for other contracts has been an underappreciated risk for contract drafters, especially in sophisticated transactions involving multiple parties using different contracts to allocate risk and responsibility among various actors with respect to different aspects of a complex deal. Many courts have yet to articulate clear rules on how they evaluate the relationship between contracts that might relate to the same parties—a question that might be most salient in innovative complex transaction structures.  

Yet, lest the lesson of Coinbase’s contract drafting mistake get lost on the drafters of contracts of adhesion who seek to insulate themselves from judgment, Justice Gorsuch’s concurrence, which insists that the Court does not endorse the Ninth Circuit’s reasoning, puts a fine point on it.  In fact, Justice Gorsuch goes so far as to contemplate a provision to be included in “a master contract,” which he suggests, could be used in such circumstances. The provision would state that all disputes “related to this or future agreements between the parties, including questions concerning whether a dispute should be routed to arbitration, shall be decided by an arbitrator.”  While this is an apt lesson for parties involved in sophisticated transactions (and, in fact, one I discuss in my article), the implications of this lesson, should courts ultimately accept that such a provision can bind parties’ future agreements in the context of contracts of adhesion, are troubling as a matter of contract and consent.

Indeed, given the difficulty courts face in policing the boundaries between doctrine designed for sophisticated parties on one hand, and for consumer contracts on the other (as Ethan Leib and I have discussed), Justice Gorsuch’s invitation to import a practice from complex transactions involving sophisticated parties into the context of consumer contracts further threatens whatever boundaries remain in the doctrine—and whatever protections remain for consumers from companies’ ability to strip them of rights through fine print. Most basically, Justice Gorsuch’s approach would further expand the scope of the arbitration clauses imposed on consumers by corporate entities. And, as Disney’s recent ugly attempt at arbitration-clause bootstrapping and similar cases suggest, companies are likely to continue to try to pursue this goal.