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Ninth Circuit Affirms District Court’s Order Denying Online Cryptocurrency Exchange’s Motion to Compel Arbitration of Users’ Claims

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In David Suski v. Coinbase, Inc., et al., the Ninth Circuit affirmed a district court order denying defendant Coinbase, Inc.’s motion to compel arbitration, concluding that issues surrounding a forum selection clause were not delegated to the arbitrator and were for the court to decide. The court further found that the forum selection clause in Coinbase’s official rules superseded the user agreement’s arbitration clause.

The case involved claims brought by the plaintiff and other users of Coinbase’s online cryptocurrency exchange who opted into Coinbase’s “Dogecoin Sweepstakes” in June 2021. When opening their accounts, the plaintiffs agreed to a Coinbase user agreement which included an arbitration provision. The plaintiffs later opted into the sweepstakes’ official rules, which included a forum selection clause providing that “California courts have exclusive jurisdiction over any controversies regarding the sweepstakes.” The plaintiffs later brought claims under California’s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase and another defendant hired by Coinbase to market and run the sweepstakes. Coinbase filed a motion to compel arbitration of the plaintiffs’ claims. The district court denied the motion, concluding that the “delegation clause” in the user agreement “did not delegate to the arbitrator the issue of which contract [the User Agreement or Official Rules] governed the dispute.” Applying state law principles of contract interpretation, the district court then ruled that the official rules superseded the user agreement, and that the arbitration clause contained in the user agreement did not apply to the plaintiffs’ claims.

The Ninth Circuit affirmed the district court’s order and addressed Coinbase’s argument that the district court erred when it concluded that the user agreement did not delegate to the arbitrator the issue of whether the forum selection clause in the official rules superseded the arbitration clause in the user agreement. The court noted its decision in Oracle Am. Inc. v. Myriad Grp. A.G., (9th Cir. 2013) that “[w]hether the court or the arbitrator decides arbitrability is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise.” The court then found that the district court correctly ruled that in this case, the issue of whether the forum selection clause in the official rules superseded the arbitration clause in the user agreement “was not delegated to the arbitrator, but rather was for the court to decide.”

The court then addressed Coinbase’s argument that the district court erred when it concluded that the forum selection clause in the official rules superseded the arbitration clause contained in the user agreement. The court noted that state law principles of contract formation and interpretation apply “when determining whether parties have agreed to submit to arbitration” and when there are two contracts dealing with the same subject matter without addressing whether the second contract is a substitute for the first, “the two contracts must be interpreted together and the latter contract prevails to the extent they are inconsistent.” The court agreed with the district court that given the conflict between the official rules and the user agreement, “the Official Rules’ forum selection clause supersedes the User Agreement’s arbitration clause” since the official rules came after the user agreement.

David Suski, et al. v. Coinbase, Inc., et al., No. 22-15209 (9th Cir. Dec. 16, 2022)

Seventh Circuit Affirms District Court Decision Refusing To Refer Putative Class Action Under the Illinois Biometric Information Privacy Act to Arbitration

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In Joshua Johnson v. Mitek Systems, Inc., the Seventh Circuit affirmed a district court order denying defendant Mitek Systems, Inc.’s motion to compel arbitration of the plaintiff’s claims brought under the Illinois Biometric Information Privacy Act. The case before the district court involved a putative class action brought on behalf of Joshua Johnson, and all others similarly situated, in Illinois state court. Mitek removed the matter to the U.S. District Court for the Northern District of Illinois pursuant to the Class Action Fairness Act. A company referred to in the decision as HyreCar “is an intermediary between people who own vehicles and other people who would like to drive for services such as Uber and GrubHub.” HyreCar verifies an applicant’s background and in so doing, sends certain personal information about the applicant to Mitek, which “provides identity-verification services.” Johnson alleges that Mitek used his information without the consent required by section 15 of BIPA.

Johnson’s contract with HyreCar included an arbitration clause which obligated Johnson to arbitrate any claims “with a long list of entities” including “all authorized or unauthorized users or beneficiaries of services or goods provided under the Agreement.” After removing the case to the district court, Mitek filed a motion to compel arbitration which was denied. Mitek then filed an immediate appeal to the Seventh Circuit pursuant to 9 U.S.C. §16(a)(1), contending that it is “a beneficiary of services or goods provided under the Agreement,” thereby requiring that the plaintiff arbitrate his claims against Mitek pursuant to the arbitration clause in the agreement he signed with HyreCar.

The Seventh Circuit rejected Mitek’s claims that the plaintiff is required to arbitrate his claims, finding that “‘the services or goods provided under the Agreement’ are vehicles, plus some ancillary aid that HyreCar furnishes to drivers.” The court further found that Mitek “does not receive ‘services or goods … under the Agreement’ between Johnson and HyreCar” and that Mitek cannot be classified as a “user” of HyreCar’s services or goods. The court noted that while courts “cannot disfavor arbitration, compared with other agreements” they may not “jigger the rules to promote arbitration” … and that “it would stretch contractual language past the breaking point” to conclude that Johnson or any of the other drivers agreed to arbitrate with Mitek. The court also rejected Mitek’s claim that the plaintiff should be equitably estopped from litigating the lawsuit, finding that the plaintiff “has not done anything that would estop himself from litigating this suit.” The court affirmed the district court’s decision refusing to refer the matter to arbitration, and remanded the case for a determination of whether the action may proceed as a class action “except for the claim under §15(c) of BIPA” which the court held must be remanded to state court.

Joshua Johnson v. Mitek Systems, Inc., No. 22-1830 (7th Cir. Dec. 21, 2022)

Delaware Supreme Court Finds Validity of Contract Containing Arbitration Clause to Be Decided By Arbitrator

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In a December 2022 decision, the Delaware Supreme Court considered whether the validity of an arbitration agreement is an issue to be decided by the court or by an arbitrator.

The plaintiff, Agspring LLC, was formed in 2012 by the defendant, NGP X US Holdings, LP, and two nonparties, Ranal Linville and Bradley Clark. In connection with Agspring’s formation, the parties entered into an LLC agreement and a related “services agreement,” both of which contained arbitration provisions providing for the use of JAMS arbitration rules. In 2015, NGP sold Agspring to a group of investors pursuant to a purchase agreement, which provided that any disputes regarding the purchase were to be submitted to state or federal court in Wilmington, Delaware. The 2015 purchase agreement contained an integration clause which stated in relevant part, “this agreement and the related agreements constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and supersede all prior negotiations, agreements, and understandings of the parties with respect to the subject matter hereof.”

In 2019, Clark and Linville sued Agspring in Kansas over matters related to their employment. NGP, Clark, and Linville were subsequently sued by Agspring’s new owners in Delaware state court, alleging fraud and unjust enrichment in connection with the 2015 sale of Agspring. NGP demanded indemnification of costs related to these two actions and Agspring refused, resulting in NGP initiating arbitration under the 2012 LLC agreement and services agreement. The arbitration panel ultimately found that the parties’ 2012 arbitration agreements survived the execution of the 2015 purchase agreement and concluded that NGP was entitled to indemnification for costs incurred in the above referenced lawsuits. Agspring filed a motion to vacate the arbitration award, which the trial court denied.

On appeal, Agspring argued that the trial court erred in concluding that the validity of the parties’ arbitration agreement was an issue for the arbitrator in the first instance. In considering this argument, the Delaware Supreme Court held that “whether a later in time agreement, in this case the [2015 purchase agreement], superseded the 2012 agreements, causing them no longer to exist, would, in our view, be a question to be decided by the court, unless the 2012 agreements show that the parties clearly and unmistakably agreed that such a question would be decided by arbitration.”

The Delaware Supreme Court ultimately concluded that the issue of the continued viability of the 2012 agreements was properly submitted to the arbitration panel, noting that “this result follows from the parties’ agreement [in the 2012 agreements] that the JAMS rules would apply,” including Rule 11(b) of those rules that “disputes, including disputes over the . . . existence . . . of the agreement under which arbitration is sought . . . shall be submitted to and ruled on by the arbitrator.” The Delaware Supreme Court rejected Agspring’s other arguments and affirmed the trial court’s denial of Agspring’s motion to vacate the arbitration award.

Agspring, LLC v. NGP X US Holdings, L.P., No. 2019-1021 (Del. Dec. 2, 2022).

Supreme Court of Arkansas Declines To Consider Part of Appeal Involving Court’s Failure To Consider Motion To Compel Arbitration

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The Supreme Court of Arkansas recently refused to consider the portion of an appeal involving a motion to compel arbitration because the lower court had not ruled on the motion and the court therefore concluded it did not have jurisdiction to consider the appeal.

Altice USA, Inc., d/b/a Suddenlink Communications provided phone, internet, and cable services to the City of Gurdon, Arkansas. In conjunction with its provision of services, Suddenlink assessed certain fees. The City of Gurdon filed a putative class action claiming that three of the fees assessed were improper. Suddenlink filed a motion to compel individual, non-class arbitration in response. The trial court granted class certification without ruling on Suddenlink’s motion even though Arkansas Code provided that a court “shall stay any judicial proceeding that involves a claim alleged to be subject to arbitration until the court renders a final decision” on the request for arbitration. Suddenlink then appealed the court’s failure to rule on its motion and the grant of class certification.

The Supreme Court of Arkansas concluded that it did not have jurisdiction to consider the portion of Suddenlink’s appeal that challenged the failure to rule on its motion to compel arbitration. The court noted, “only certain issues concerning arbitration are eligible for interlocutory appeal, namely orders denying motions to compel arbitration.” Because the trial court had “not entered an order denying Suddenlink’s motion to compel arbitration,” the court concluded, “the absence of an order foreclosed Suddenlink’s ability to appeal” the lack of a ruling on the motion to compel. The court also noted, “Suddenlink failed to seek an extraordinary writ to force the trial court to comply with” the provision of the Arkansas Code that seemingly required the trial court to stay proceedings pending a ruling.

The Supreme Court of Arkansas then affirmed the grant of class certification.

Altice USA, Inc. d/b/a Suddenlink Communications v. City of Gurden et al., No. CV-22-32 (Nov. 10, 2022).

Chancery Division of the High Court of England Sanctions Business Transfer Scheme Involving Applicant Insurance Companies Under the Financial Services Markets Act

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In Phoenix Life Ltd, Re, also known as: Reassure Life Ltd, Re Phoenix Life Assurance Europe Designated Activity Co, Re, the Chancery Division of the High Court of England sanctioned a plan by the applicant companies Reassure Life Ltd (RLL), Phoenix Life Ltd (PLL), and Phoenix Life Assurance Europe (PLAE) of an insurance business transfer scheme under the Financial Services and Markets Act.

United Kingdom insurers, PLL and RLL, were engaged in “closed-fund run off in the long-term sector” and PLAE was an Irish designated activity company established to facilitate the business transfer scheme. The business to be transferred had been written in Ireland, Iceland, Germany, Norway, and Sweden. The purpose of the scheme was to “ensure that policyholders in those countries obtained the full range of benefits following the UK’s departure from the European Union” by transferring “to PLAE the legal rights and obligations of PLL and RLL relating to the transferring policies together with their associated assets and liabilities.” Claims related to misselling and maladministration were not included in the scheme.

The conclusions of an independent expert who reviewed the scheme were submitted to and accepted by the Court, including the expert’s findings that “the scheme would not have a material adverse effect on the security of the benefits under the transferring policies … and the reasonable expectations of the transferring policyholders in respect of their benefits…” The Court also agreed with the independent expert’s conclusions that the nontransferring policyholders would not suffer any material adverse effects as a result of the scheme. The Court sanctioned the scheme concluding that “the technical requirements of the legislation had been complied with” and that the independent expert’s conclusion regarding PLAE’s financial strength was reasonable. In approving the scheme, the Court also agreed with several other conclusions reached by the independent expert, including that the reinsurance arrangements involved in the scheme would not create a “material adverse effect on the security of the benefits under the policies to be transferred under the scheme.”

Phoenix Life Ltd, Re, also known as: Reassure Life Ltd, Re Phoenix Life Assurance Europe Designated Activity Co, Re, (Chancery Division, High Court of England, Oct. 24, 2022)