Sweepstakes rules trump arbitration agreement, 9th Circuit affirms

Suski v. Coinbase, Inc., --- F.4th ----, 2022 WL 17726673, No. 22-15209 (9th Cir. Dec. 16, 2022)

Affirming the district court, the court of appeals agreed that Coinbase’s arbitration agreement didn’t cover claims based on a sweepstakes it ran, which had a separate set of rules that didn’t compel arbitration. As the court described it:

When plaintiffs created their Coinbase accounts, they agreed to the “Coinbase User Agreement,” which contains an arbitration provision. They later opted into the Sweepstakes’ “Official Rules,” which include a forum selection clause providing that California courts have exclusive jurisdiction over any controversies regarding the sweepstakes. Plaintiffs brought claims under California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase and Marden-Kane, Inc., a company hired by Coinbase to design, market, and execute the sweepstakes.

First, the User Agreement did not delegate to an arbitrator the question of whether the forum selection clause in the Sweepstakes’ Official Rules superseded the arbitration clause in the User Agreement. Arbitrability “is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” Issues of contract formation may not be delegated to an arbitrator. The relevant delegation clauses gave the arbitrator the ability to decide disputes related to scope/interpretation of the agreement.

But the “scope” of an arbitration clause “concerns how widely it applies, not whether it has been superseded by a subsequent agreement.” Thus, the district court properly decided the issue, and was correct that the forum selection clause superseded the prior arbitration agreement. Under California law, “ ‘[t]he general rule is that when parties enter into a second contract dealing with the same subject matter as their first contract without stating whether the second contract operates to discharge or substitute for the first contract, the two contracts must be interpreted together and the latter contract prevails to the extent they are inconsistent.’ ” The integration clause of the earlier User Agreement didn’t preclude a superseding contract from being formed in the future. “By including the forum selection clause … the Official Rules evince the parties’ intent not to be governed by the User Agreement’s arbitration clause when addressing controversies concerning the sweepstakes.” Cases in which there was an arbitration clause and an arguably inconsistent forum selection clause in the same contract were inapposite.

Moreover,

as the district court explained, the Official Rules cannot be reconciled with the User Agreement. The Official Rules apply to all Sweepstakes entrants, including entrants who are not subject to the User Agreement because they used an alternative mail-in procedure. Despite Coinbase’s arguments, the Official Rules make no distinction between entrants who are Coinbase users subject to the User Agreement’s arbitration clause and those who are not because they used an alternative mail-in entry procedure.

Interesting question: can you make free entries subject to an arbitration agreement too? Or would that come too close to conferring a benefit on the sweepstakes provider, removing the free alternate means of entry that prevents the sweepstakes from being an illegal lottery?