Wow, the U.S. Supreme Court decided a sweepstakes issue today.
Anyone who has ever drafted or looked at Official Rules typically notices some clause concerning how disputes are to be resolved. Often there is forum selection or arbitration clause providing that all disputes must be resolved in [INSERT STATE] courts or in arbitration. But how many of us have also considered whether this provision conflicts with the general user agreement of the Sponsor’s website where the sweepstakes is being offered.
What if your Official Rules say that all disputes are be decided in California courts, but your User Agreement says that all disputes are to be decided in arbitration? Which provision controls? And more fundamentally, who makes that decision – a judge or an arbitrator?
Today, the U.S. Supreme Court decided this exact issue in Coinbase, Inc. v. Suski, 602 U.S. ___ (May 23, 2024). Coinbase had a User Agreement on its online platform which provided that users agreed to arbitrate any disputes and further provided that the issue of arbitrability “shall be decided by an arbitrator and not by a court or judge.”
Coinbase then offered an online sweepstakes where users could enter for a chance to win Dogecoin. The Official Rules for the sweepstakes provided that the California courts “shall have sole jurisdiction of any controversies regarding [the sweepstakes]” and that “each entrant waives any and all objections to the jurisdiction and venue in those courts for any reason and hereby submits to the jurisdiction of those courts.” Uh oh!
After the sweepstakes ended, following the Official Rules, entrants filed a class action lawsuit in California court alleging that the sweepstakes violated California’s false advertising and unfair competition laws. Coinbase responded by moving to compel arbitration pursuant to the arbitration provision in the User Agreement.
The U.S. Supreme Court decided that the court should decide the issue of arbitrability because the forum selection clause in the sweepstakes Official Rules, which was entered into after the User Agreement, superseded the User Agreement’s delegation clause which delegated all issues concerning arbitrability to an arbitrator. [Important note: the U.S. Supreme Court did not decide whether or not the dispute should be in arbitration or in the courts, but the preliminary issue of who makes that decision – which, it said was for the court to decide based upon the subsequent agreement, i.e., the Official Rules.
Lessons to be learned:
- The Official Rules form a binding agreement between the entrants and the Sponsor – while we all take this as a given, the Supreme Court has now said it.
- The Official Rules supersede your User Agreement – meaning that any inconsistent language in the Official Rules will control.
- Therefore, check your User Agreement when drafting Official Rules. And either be consistent or understand that you may be changing the terms of the User Agreement by having inconsistent provisions in your Official Rules.
- Specifically, check your User Agreement’s forum selection clause before adding a forum selection clause in your Official Rules.
- And if you want a specific forum selection for any sweepstakes disputes that is different from the forum selection in the User Agreement make sure your Official Rules expressly acknowledges that an entrant is agreeing to something different from in the User Agreement. For example, Coinbase could have considered adding an express provision in the forum selection clause of the Official Rules stating that this forum selection provision expressly supersedes the arbitration provision in the User Agreement.
