In a landmark ruling on Thursday, the U.S. Supreme Court delivered a unanimous decision against Coinbase Inc. (COIN) in an arbitration dispute related to the cryptocurrency exchange’s 2021 Dogecoin (DOGE) sweepstakes. The 9-0 ruling clarified the need for a court to determine which legal agreement takes precedence when parties are governed by multiple contracts. Justice Jackson emphasized that the question of whether parties agreed to arbitrate arbitrability can only be resolved by identifying which contract applies in the given situation. The conflict between the delegation clause in the first contract and the forum selection clause in the second contract was at the center of the court’s decision.
Initially, Coinbase had attempted to resolve the dispute through arbitration, citing user agreements that mandated 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, overruled the customer agreement. The recent Supreme Court ruling affirmed the lower court’s responsibility to determine which agreement controls the case. Justice Jackson also dismissed Coinbase’s concerns regarding potential legal confusion and avoidance of arbitration agreements, asserting that chaos would not ensue as a result of the decision.
Richard Silberberg, an arbitration lawyer with Dorsey & Whitney, expressed that the Supreme Court’s decision was not surprising, considering previous rulings. He emphasized the court’s role in deciding whether the parties’ initial agreement was superseded by a subsequent contract. Silberberg also noted that the ruling’s limited scope might restrict its application in future arbitration-related cases. Despite a previous arbitration-related victory for Coinbase supported by the court’s conservative majority, this decision marks a significant setback for the cryptocurrency exchange.
Following the Supreme Court’s ruling, Coinbase’s Chief Legal Officer, Paul Grewal, acknowledged the outcome by stating, “Some you win. Some you lose.” He expressed gratitude for the opportunity to present the case to the court and appreciation for the court’s consideration of the matter. The underlying lawsuit, initiated by former Coinbase user David Suski, revolves around allegations that the exchange’s “Trade Doge, Win Doge” contest misled participants by requiring a $100 purchase or sale of Dogecoin for eligibility to win cash prizes. However, the contest’s fine print disclosed an alternative entry method via mail, eliminating the necessity for a purchase in accordance with U.S. sweepstakes laws.
The Supreme Court’s ruling against Coinbase in the arbitration dispute sets a precedent for future cases involving conflicting contractual agreements. The decision highlights the importance of clarifying which contract governs a given situation, especially when multiple agreements are in play. Despite Coinbase’s efforts to resolve the dispute through arbitration, the court’s ruling emphasizes the need for judicial intervention to determine the applicable terms. This case serves as a reminder for parties to carefully consider and prioritize their contractual obligations to avoid similar legal conflicts in the future.