On June 23, 2023, the Supreme Court issued a very important decision concerning the procedure to be followed when a district court denies a party’s request to compel arbitration. See Coinbase v. Bielski, No. 22-105, __ U.S. __ (June 23, 2023). Under 9 U. S. C. §16(a), when a federal district court denies a motion to compel arbitration, the losing party has a statutory right to an interlocutory appeal. The question for the Supreme Court, in this case, was whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing. The court answered “yes”.
Factual Background
The facts of the case are simple. Coinbase operates an online platform on which users can buy and sell cryptocurrencies. Bielski filed a putative class action alleging that Coinbase failed to replace funds fraudulently taken from the users’ accounts.
Coinbase moved to compel arbitration based on an arbitration clause in its User Agreement. The District Court denied the motion and Coinbase filed an interlocutory appeal. Coinbase also moved the District Court to stay its proceedings pending resolution of the interlocutory appeal. The District Court denied that request and the Ninth Circuit likewise declined to issue a stay.
The Supreme Court Decision
Under Supreme Court precedent in Griggs v. Provident Consumer Discount Co., 459 U. S. 5 (1982), an appeal, including an interlocutory appeal, “divests the district court of its control over those aspects of the case involved in the appeal.” Here, the question on appeal was whether the case belongs in arbitration. This means, according to the Supreme Court, that the entire case was essentially “involved in the appeal.” Put another way, the question of whether “the case should be litigated in the district court . . . is the mirror image of the question presented on appeal.” Thus, Griggs dictated a stay of the district court proceedings while the interlocutory appeal on arbitrability was ongoing. Most courts of appeals to address this question (Eleventh, Fourth, Third, Tenth, D.C., Seventh, and Fifth), as well as leading treatises, agree with that conclusion.
The court also explained how staying the district court case is the common sense solution. If 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 (such as efficiency, less expense and less intrusive discovery) would be irretrievably lost. It would be of no moment if the court of appeals later concluded that the case actually had belonged in arbitration from the outset because, without the stay, nothing could undo the expenses and intrusiveness that would have been incurred while the appeal was pending. Absent a stay, the court explained, parties might also be forced to settle in order to avoid the very district court proceedings (including discovery and trial) that they contracted to avoid.
The Supreme Court also noted that when Congress wants to authorize an interlocutory appeal, but not to automatically stay district court proceedings pending that appeal, Congress typically says so. On the flip side of that coin, when Congress wants to authorize an interlocutory appeal and to automatically stay the district court proceedings during that appeal, Congress typically does not say anything about a stay.
The Supreme Court then went on to reject all of Bielski’s arguments in favor of there not being an automatic stay. First, in response to his argument that an automatic stay would encourage frivolous appeals, the Supreme Court said there was no evidence to support that contention and, anyway, there are procedural mechanisms to control for that (such as the district court certifying that an appeal is frivolous).
Second, Bielski argued that Section 3 of the FAA and §1292(d)(4) of Title 28 specifically provide for stays, implying that the lack of a stay in the language in Section 16(a) regarding interlocutory appeals shows that none was intended. The Supreme Court explained that the Section 3 stay was of the lawsuit pending arbitration. There was nothing like Griggs that automatically authorized such a stay and so a specific provision was required. Likewise, a specific provision was required in Section 1292(d)(4) because 1292(d)(3) had a discretionary stay and so Congress wanted to avoid any possibility of misinterpretation.
Third, Bielski argued that requiring an automatic stay would create a special, arbitration-preferring procedural rule. The Supreme Court disagreed and said it was simply following Griggs. Indeed, to the contrary, Bielski’s proposed approach would disfavor arbitration compared to other areas of law.
Fourth, Bielski argued that there is no need for an automatic stay because the ordinary discretionary stay factors would adequately protect parties’ rights to an interlocutory appellate determination of the stay issue. But the evidence was to the contrary. And, in any event, the Griggs rule applies regardless of how often courts might otherwise grant stays under the ordinary discretionary stay factors.
Finally, Bielski relied on the Supreme Court’s statement in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 21 (1983) that questions of arbitrability are “severable from the merits of the underlying disputes.” But the sole issue in Coinbase was whether the district court’s authority to consider a case is “involved in the appeal” when an appellate court considers the threshold question of arbitrability. The answer to that was “yes” and there was nothing in Moses H. Cone to the contrary.
The Supreme Court decided that, after Coinbase appealed from the denial of its motion to compel arbitration, the District Court was required to stay its proceedings. The decision of the Ninth Circuit was therefore reversed.
Conclusion
The Coinbase decision has now made clear to all courts across the country that district court proceedings must be stayed whenever there is an interlocutory appeal of a decision denying a motion to compel arbitration.
