In a unanimous decision, the U.S. Supreme Court recently ruled against Coinbase Inc. (COIN) in an arbitration dispute stemming from the cryptocurrency exchange’s 2021 Dogecoin (DOGE) sweepstakes. The ruling clarified the importance of determining which legal agreement takes precedence when parties are governed by multiple contracts. Justice Jackson emphasized the need to establish which contract applies in order to ascertain whether the parties agreed to arbitrate arbitrability. Specifically, the conflict between the delegation clause in the first contract and the forum selection clause in the second contract must be resolved to determine if the dispute should be sent to arbitration.
Coinbase had initially attempted to resolve the dispute through arbitration based on user agreements mandating arbitration for all customers. However, a federal judge had previously ruled that the sweepstakes terms, which designated California’s court system as the forum for related disputes, took precedence over the customer agreement. The recent Supreme Court decision affirmed that it is the responsibility of the lower court to determine which agreement governs the case. Justice Jackson refuted Coinbase’s argument that ruling against them would create legal confusion and allow parties to circumvent arbitration agreements, stating that such chaos is unlikely to occur.
Legal experts, including Richard Silberberg from Dorsey & Whitney, viewed the Supreme Court’s decision as unsurprising, citing previous rulings on similar matters. Silberberg underscored that a court, rather than an arbitrator, must decide if the parties’ initial agreement was superseded by the second contract. He also noted that due to the narrow focus of this case, its relevance in future arbitration-related disputes may be limited. Despite losing this case, Coinbase had previously prevailed in a different arbitration matter with the support of the court’s conservative majority.
Following the Supreme Court’s ruling, Coinbase’s Chief Legal Officer, Paul Grewal, expressed a balanced perspective, acknowledging that some cases are won while others are lost. Grewal expressed gratitude for the opportunity to present Coinbase’s case to the court and appreciated their consideration of the matter. The lawsuit against Coinbase, filed by former user David Suski, alleges that the exchange’s “Trade Doge, Win Doge” contest misled participants by suggesting that a $100 transaction involving Dogecoin was necessary to be eligible for cash prizes. Despite the contest’s fine print allowing an alternative entry method through mail, some participants claim they would not have made the $100 DOGE purchase had they known about this option.
The Supreme Court’s ruling against Coinbase underscores the importance of carefully evaluating conflicting contractual agreements and determining which agreement governs a particular dispute. The decision has legal implications for similar cases in the future and highlights the need for clarity in contractual obligations to avoid confusion and ensure fair resolution of disputes.
