U.S. Supreme Court Orders Automatic Stays Of District Court Proceedings When Parties Appeal Denials Of Motions To Compel Arbitration

By Eden E. Anderson, Rebecca S. Bjork, and Gerald L. Maatman, Jr.

Duane Morris Takeaways: On June 23, 2023, the U.S. Supreme Court issued a 5-4 ruling that is welcome news to parties seeking to enforce arbitration agreements.  In Coinbase, Inc. v. Bielski, No. 22-105 (U.S. June 23, 2023), the Supreme Court decided that district courts must stay all proceedings after denying a motion to compel arbitration once the moving party appeals the denial.  Such appeals are allowed on an interlocutory basis under the Federal Arbitration Act (FAA), but the FAA is silent as to a stay pending appeal.  This ruling is significant because parties seeking to resolve claims in arbitration will no longer be required to litigate whether the district court should stay its consideration of the case until their appeal is decided.  They also will be spared proceeding with discovery and motion practice in the district court while their appeal of the denial of arbitration is pending.  As the majority explained in its opinion, this will further the purposes of arbitration (efficiency, less expense, and less intrusive discovery), save scarce judicial resources, and reduce pressure on defendants to settle.

Case Background

Abraham Bielski brought a class action lawsuit in the U.S. District Court for the Northern District of California against Coinbase, Inc., a company that operates an online platform where users buy and sell cryptocurrencies as well as government-issued currencies.  Slip Op. at 1.  Coinbase’s User Agreement contained a provision requiring binding arbitration of any disputes arising from use of the platform. Id. As a result, Coinbase moved to compel arbitration, but the district court denied its motion.  Id. at 1-2.  Coinbase filed an appeal to the Ninth Circuit under 9 U.S.C. § 16(a), the FAA’s provision that allows interlocutory appeals of denials of such motions.  Id. at 2.  At the same time – as is customary – Coinbase moved the district court to stay proceedings pending the Ninth Circuit’s decision on the arbitrability of the dispute between itself and Bielski.  Id.  The district court denied the motion, so Coinbase had to expend even more resources asking the Ninth Circuit to order a stay of the district court’s proceedings.  That motion, too, was denied, based on Ninth Circuit precedent holding that a denial of a motion to compel arbitration does not automatically stay proceedings.  Id. (citing Britton v. Co-op Banking Group., 916 F.2d 1045, 1412 (9th Cir. 1990).  The U.S. Supreme Court granted certiorari to resolve a split between the circuit courts on the issue, citing Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997), among other circuit court decisions contrary to the Ninth Circuit’s rule.

The Supreme Court’s Decision

Justice Kavanaugh authored the majority opinion, which was joined by Chief Justice Roberts and Justices Alito, Gorsuch and Barrett.  The question presented was “whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing.”  Slip Op. at 1.  In explaining its answer, which is “yes,” the majority first pointed to the section of the FAA that allows interlocutory appeals where motions to compel arbitration are denied by federal district courts, noting that it is “a rare statutory exception to the usual rule” precluding appeals before final judgment.  Id. at 1, 3.  The Congress did not include any language in § 16(a) of the FAA relating to stays during the interlocutory appeal process.  However, the majority placed the enactment of that section within “a clear background principle prescribed by this Court’s precedents” – namely, that an appeal “divests the district court of its control over those aspects of the case involved in the appeal.”  Id. (citing Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982).  Indeed, Justice Kavanaugh traced that principle all the way back to a Supreme Court decision issued in 1883 entitled Hovey v. McDonald, 109 U.S. 150, 157 (1883).

The majority bluntly stated that “[t]he Griggs principle resolves this case.”  Id. at 3.  Relying on “common practice” and common sense, they note that leading treatises on litigation in federal courts consider issuing stays pending interlocutory appeals of denials of arbitration to be “the sounder approach” and desirable.  Id. at 4-5.  The Supreme Court reasoned that it makes sense that “absent an automatic stay of district court proceedings, Congress’s decision in § 16(a) to afford a right to an interlocutory appeal would be largely nullified.”  Id. at 5.

Beyond this reasoning, the majority also noted the purposes of arbitration and explained that automatic stays will preserve those objectives of efficiency, reduced litigation cost, and reduced discovery burdens on the parties.  Id. at 6.  Defendants in class actions in particular are subject to immense pressure to settle cases where arbitration motions are denied, presenting a “potential for coercion . . . where the possibility of colossal liability can lead to what [are] called ‘blackmail settlements.’” Id. at 6.

The majority also noted that allowing a case to proceed simultaneously in district court and the court of appeals leads to a distinct possibility that scarce judicial resources will be wasted if, for example, the parties litigate a dispute in the district court, only for the court of appeals to reverse and order that very same dispute to binding arbitration.  Id.

Implications for Employers

As any employer knows who has been sued by a named plaintiff in a class action despite that plaintiff having signed an arbitration agreement with a class action waiver, the Supreme Court’s decision in Coinbase is a very welcome development.  With potentially thousands of absent class members’ claims at issue, a district court’s denial of an employer’s motion to enforce its arbitration agreement can be an earth-shattering development.  In addition, employers with nationwide operations now have a single, uniform rule that applies to this situation, bringing certainty to the law and one common rule in each and every circuit court.  The Supreme Court’s decision is, therefore, a highly significant development in the law regarding arbitration.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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