DELEGATION CLAUSE
Coinbase, Inc. v. Suski, 602 U.S. 143
Mondragon v. Sunrun, Inc., 101 Cal. App. 5th 592
Coinbase, Inc. v. Suski, 602 U.S. 143
When the plaintiffs created their Coinbase accounts, they agreed to the "Coinbase User Agreement," which contained an arbitration provision with a delegation clause. They later opted into the Sweepstakes' "Official Rules," which did not have an arbitration clause. The plaintiffs brought claims under California's False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act against Coinbase. Coinbase filed a motion to compel arbitration, which the district court denied. The district court ruled that the Official Rules superseded the Coinbase User Agreement and that and denied the motion. Coinbase appealed and the Ninth Circuit affirmed.
Coinbase appealed to the Supreme Court, arguing that the Ninth Circuit should have applied the so-called severability principle—under which “an arbitration [or delegation] provision is severable from the remainder of the contract,” Buckeye Check Cashing, Inc. v. Cardegna, 546 U. S. 440, 445-446, 126 S. Ct. 1204, 163 L. Ed. 2d 1038—and considered only arguments specific to the User Agreement’s delegation provision. The Supreme Court rejected this argument and affirmed. The severability rule does not require that a party challenge only the arbitration or delegation provision. Rather, where a challenge applies “equally” to the whole contract and not just to an arbitration or delegation provision, a court must address that challenge.
Mondragon v. Sunrun, Inc., 101 Cal. App. 5th 592
The plaintiff filed a PAGA claim against his former employer. The defendant moved to compel arbitration. The plaintiff opposed the motion, noting that the arbitration agreement carved out PAGA claims. The defendant responded that the issue of arbitrability should be decided by the arbitrator, arguing that the agreement stated that the AAA rules applied and these rules provided that the arbitrator had the power to decide arbitrability. The motion was denied, and the defendant appealed. The Court of Appeal affirmed, citing four reasons why the delegation clause was not enforceable.
First, the AAA rules did not state the arbitrator “has exclusive authority” to determine arbitrability issues. The rules stated only that the arbitrator had “the power” to rule on the arbitrator's jurisdiction. Thus, it did not necessarily follow that courts were precluded from entertaining those same challenges if asked to do so prior to arbitration.
Second, the arbitration agreement provided that, “if a court or arbitrator” refuses to enforce any portion of the agreement, the remainder of the agreement shall remain valid. The agreement's incorporation of the AAA rules and reference to a court refusing to enforce certain provisions create an ambiguity regarding whether the parties intended to delegate arbitrability decisions to the arbitrator. This meant the parties did not clearly and unmistakably delegate to the arbitrator authority to decide whether Mondragon agreed to arbitrate his individual PAGA claims.
Third, Sunrun argued that the reference in the severability clause to a court invalidating or refusing to enforce a term of the agreement applied only to a court invalidating or refusing to enforce the class and collective actions waiver. Sunrun's interpretation of the severability clause was arguably reasonable. But the question was not whether the interpretation was reasonable, or even whether ordinary rules of contract interpretation yielded the result that arbitrators have power to decide whether Mondragon agreed to arbitrate his individual PAGA claims. The question was whether the delegation was clear and unmistakable. And it wasn't.
Fourth, even where an agreement's incorporation of arbitration rules may otherwise constitute a clear and unmistakable delegation, the rules do not apply where the arbitration agreement creates a carve-out for certain claims and the arbitrability dispute is whether the carve-out covers the claims at issue. The agreement here included a section carving out certain claims, including PAGA claims. Had the agreement stated the arbitrator would decide all disputes regarding the scope of the arbitration agreement, the analysis might be different. But by including separate sections that listed claims covered by the agreement and claims not covered by the agreement, and stating the parties would use the AAA rules “for arbitration,” it was at least ambiguous whether the carve-out delayed application of AAA rules until a court first determined whether Mondragon's claims fell within one of the carve-out provisions.