US Supreme Court: Interlocutory appeals of denials of motions to compel arbitration automatically stay district court proceedings
The US Supreme Court recently issued a business-friendly opinion in Coinbase, Inc. v. Bielski, resolving a circuit split and mandating that a district court must stay its pre-trial and trial proceedings when a defendant appeals the denial of a motion to compel under the Federal Arbitration Act (FAA), 9 U.S.C. §16(a). 599 U.S. ----, slip op. at 1-2 (June 23, 2023). The decision makes clear that the stay is automatic, and district courts lack discretion to proceed with the litigation until the appeal is decided.
As courts within the Second, Fifth, and Ninth Circuits no longer have discretion to continue the litigation, this ruling eliminates a pressure point that plaintiffs’ counsel often attempted to exploit: pushing forward with litigation, including costly discovery, to extract a settlement from a defendant. As Justice Brett Kavanaugh, writing for the 5-4 majority, explained “[i]f the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost…” Id., slip op. at 2, 6.
Defendants may also use the Court’s rationale to advance a similar argument to seek a stay when an interlocutory appeal is certified on a forum selection issue, as described below.
Coinbase is an online currency platform that allows users to buy and sell cryptocurrencies and government-issued currencies. As part of the account creation process, Coinbase requires its users to agree to the terms in Coinbase’s User Agreement, including a binding arbitration provision.
Abraham Bielski filed a putative class action on behalf of Coinbase users in the US District Court for the Northern District of California. The class action complaint alleged that Coinbase failed to replace funds fraudulently taken from user accounts. Coinbase moved to compel arbitration pursuant to its User Agreement, and the District Court denied that motion.
Coinbase then took an interlocutory appeal to the Ninth Circuit under the FAA and asked the District Court to stay its proceedings pending resolution of the appeal. The District Court declined to stay its proceedings, and the Ninth Circuit likewise declined to stay the District Court’s proceedings pending appeal. The Supreme Court granted certiorari to review the issue of whether a district court must stay its pre-trial and trial proceedings while an interlocutory appeal under the FAA is ongoing.
Supreme Court’s decision
While Section 16(a) of the FAA does not expressly mandate that a district court must stay proceedings pending resolution of an interlocutory appeal, the Supreme Court explained that Section 16(a) incorporated the Griggs principle, which provides that an appeal, including an interlocutory appeal, “divests the district court of its control over those aspects of the case involved in the appeal.” Coinbase, slip op. at 1, 3 (quoting Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)). Because the question of a case’s arbitrability centers on “whether the case belongs in arbitration or instead in the district court, the entire case is essentially ‘involved in the appeal.’” Id. (quoting Griggs, 459 U. S., at 58). As such, the Griggs principle dictates that the case must be stayed to allow final resolution of the issue.
The Court also explained that “common sense” supports staying district court proceedings during the pendency of a Section 16(a) interlocutory appeal. According to the Court, the many benefits of arbitration, such as “efficiency, less expense, and less intrusive discovery,” would be lost if a district court could move forward with its proceedings notwithstanding the pending appeal. Coinbase, slip op. at 6. Further, the Court noted that “allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources…on a dispute that will ultimately head to arbitration in any event.” Id.
More critically, the Court stated that absent a stay, parties could be forced to settle to avoid the district court proceedings that they contracted to avoid through arbitration. “That potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge Friendly called ‘blackmail settlements.’” Coinbase, slip op. at 6 (citing H. Friendly, Federal Jurisdiction: A General View 120 (1973)). As such, the Court stressed that “[t]he Griggs rule avoids that detrimental result.” Id.
Writing in dissent, Justice Ketanji Brown Jackson stated that the Court’s “mandatory-general-stay rule [wa]s so untethered from [the FAA] that the statutory text ha[d] no role in” the majority’s reasoning. Coinbase, slip op. at 3 (Jackson, J., dissenting). She further argued that “Griggs merely prevents the district court from modifying [its order declining arbitration] - i.e., Griggs prevents the district judge from revisiting whether to compel arbitration while the appeal is pending.” Id. at 9.
The dissent forewarned that the grounds for the Court’s mandatory-general-stay rule could justify a party arguing that a mandatory stay should apply for “any appeal over the proper forum for a dispute,” including “forum-selection agreements,” “venue, personal jurisdiction, forum non conveniens, federal-court jurisdiction, and abstention.” Id. at 14.
Practical implicationsCompanies that use arbitration agreements will benefit from the Court’s defense-friendly decision in Coinbase. It will allow companies whose motions to compel arbitration are denied to avoid the prohibitive costs of class action litigation until the arbitration issue is finally resolved by taking an appeal under Section 16(a). While four members of the Court expressed concern that the Coinbase ruling’s rationale might apply to “every interlocutory appeal concerning a case-dispositive-issue,” Coinbase, slip op. at 14 (Jackson, J., dissenting), companies should be mindful of the opportunity to advance such an argument. Indeed, without hesitation, the majority expressly acknowledged, that such stays “could be required” when an interlocutory appeal is certified on a forum selection issue. Coinbase, slip op. at 9.
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