On Thursday, the U.S. Supreme Court delivered a unanimous decision against Coinbase Inc. (COIN), addressing an arbitration dispute that emerged from the cryptocurrency exchange’s 2021 Dogecoin (DOGE) sweepstakes.
The 9-0 ruling clarified that a court must determine which legal agreement holds precedence when parties are governed by multiple contracts.
Supreme Court Upholds Lower Court’s Authority
“The question whether these parties agreed to arbitrate arbitrability can be answered only by determining which contract applies,” Justice Jackson wrote. “When we home in on the conflict between the delegation clause in the first contract and forum selection clause in the second, the question is whether the parties agreed to send the given dispute to arbitration – and, per usual, that question must be answered by a court.”
Coinbase had previously sought to settle the dispute through arbitration, relying on user agreements mandating arbitration for all customers. However, a federal judge ruled in November that the sweepstakes terms, which specified California’s court system as the forum for related disputes, took precedence over the customer agreement.
The latest Supreme Court ruling confirmed that a lower court should determine which agreement controls this case. Justice Jackson also dismissed Coinbase’s argument that ruling against them would lead to widespread legal confusion and enable parties to evade arbitration agreements. “We do not believe that such chaos will follow,” they wrote.
Richard Silberberg, an arbitration lawyer with Dorsey & Whitney, noted that the decision was “hardly surprising” given previous rulings and affirmed that “a court, not an arbitrator, must decide whether the parties’ first agreement was superseded by the second.”
They also noted that because of the case’s narrow scope, it will have limited applicability in future arbitration-related cases.
Arbitration Dispute
Last year, Coinbase won in a different arbitration-related matter, supported by the court’s conservative majority. In response to the latest decision, Coinbase’s Chief Legal Officer Paul Grewal commented on X, “Some you win. Some you lose. We are grateful for having had the opportunity to present our case to the court and appreciate the court’s consideration of this matter.”
What a week. Some you win. Some you lose. We are grateful for having had the opportunity to present our case to the Court and appreciate the Court’s consideration of this matter. https://t.co/FLTKRU7UUG
— paulgrewal.eth (@iampaulgrewal) May 23, 2024
The underlying lawsuit, initiated by former Coinbase user David Suski, alleges that the exchange’s “Trade Doge, Win Doge” contest misled participants into believing that a $100 purchase or sale of Dogecoin was required for eligibility to win cash prizes.
However, the contest’s fine print revealed an alternative entry method via mail, avoiding the need for purchase in compliance with U.S. sweepstakes laws. Suski and other plaintiffs argue they would not have spent $100 on DOGE had they been aware of this loophole.
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