Supreme Court Rules Parties Are Entitled to Stay Trial Court Proceedings Pending the Outcome of Interlocutory Appeals That Challenge the Denial of a Motion to Compel Arbitration
June 27, 2023
By: Veronica J. Mina
In Coinbase, Inc. v. Bielski, No. 22-105, 599 U.S. ___ (2023), the United States Supreme Court held that a federal district court must stay its proceedings when it denies a party’s motion to compel arbitration and the losing party pursues its right under the Federal Arbitration Act (“FAA”) to take an interlocutory appeal on the question of arbitrability.
Coinbase, Inc. (“Coinbase”), operates an online platform on which users can buy and sell cryptocurrencies and government-issued currencies. When a user creates a Coinbase account, it must sign the Coinbase User Agreement (the “User Agreement”), which contains an arbitration clause that requires all disputes arising under the User Agreement to be resolved through binding arbitration. Abraham Bielski (“Bielski”) filed a putative class action in federal court in California against Coinbase based on allegedly fraudulent cryptocurrency transfers. Specifically, Bielski claimed that Coinbase failed to replace funds fraudulently taken from the users’ accounts.
Due to the mandatory arbitration provision in the User Agreement, Coinbase filed a motion to compel arbitration. The district court denied the motion. Coinbase then filed an interlocutory appeal to the United States Court of Appeals for the Ninth Circuit under the FAA, 9 U.S.C. §16(a), which authorizes an interlocutory appeal from the denial of a motion to compel arbitration. Section 16(a) of the FAA reflects a rare statutory exception to the usual rule that parties may not appeal before a final judgment is entered. Notably, in the FAA, Congress provided for immediate interlocutory appeals of orders denying – but not orders granting – motions to compel arbitration. In addition to the interlocutory appeal, Coinbase moved to have the district court stay the proceedings before the district court pending outcome of the interlocutory appeal. The district court denied Coinbase’s stay motion, and the Ninth Circuit, relying on its own precedent in Britton v. Co-op Banking Group, 916 F.2d 1405 (9th Cir. 1990), likewise declined to stay the district court’s proceedings pending the outcome of the interlocutory appeal. The Supreme Court granted certiorari.
In reversing the Ninth Circuit, the Supreme Court relied upon what has been commonly termed the “Griggs principle” or the “Griggs rule.” The Griggs principle, developed in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982), 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.” This principle is necessary to avoid the “danger a district court and a court of appeals would be simultaneously analyzing the same judgment.”
In applying the Griggs principle, the Court explained that because the question on appeal is whether the case belongs in arbitration instead of the district court, the entire case is essentially “involved in the appeal.” As a result, it makes little sense for the litigation to continue in the district court while the appeal is pending. Deeming this practice “common sense,” the Supreme Court explained the ramifications that could be reaped if a mandatory stay was not provided in these cases. In this regard, if a district court could move forward with pretrial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (e.g., efficiency, lower cost, less intrusive discovery) would be irretrievably lost, even if the appellate court concluded that the case should have been in arbitration all along. Absent a stay in the trial court, parties also could be forced to settle cases to avoid district court proceedings (including discovery and trial) they contracted to avoid through the use of arbitration. Thus, the Supreme Court concluded that the benefit of an interlocutory appeal provided by the FAA when a motion to compel arbitration is denied would largely be nullified if an automatic stay of the district court proceedings was not implemented. In other words, “a right to interlocutory appeal of the arbitrability issue without an automatic stay of the district court proceedings is therefore like a lock without a key, a bat without a ball, a computer without a keyboard – not especially sensible.” As a result, the Court concluded that implementing a stay of district court proceedings is mandatory when a party files an interlocutory appeal of a district court order denying a motion to compel arbitrations.
In further support of its decision that an automatic stay is warranted until an interlocutory appeal regarding the issue of arbitrability is resolved, the Court examined the text of the FAA. In this regard, the Court commented that, “[w]hen Congress wants to authorize an interlocutory appeal and to automatically stay the district court proceedings during the appeal, Congress need not say anything about a stay.” In contrast, “when Congress wants to authorize an interlocutory appeal, but not to automatically stay district court proceedings pending that appeal, Congress typically says so.” (emphasis added by Court).
The Supreme Court’s decision in Coinbase is significant because it automatically imposes a stay on district court proceedings when a district court denies a motion to compel arbitration under the FAA and the party seeking arbitration files an interlocutory appeal. This stands in contrast to the typical procedure that grants district courts substantial discretion on matters concerning the management of their dockets, including whether to stay a proceeding. In light of the Supreme Court’s decision, litigants are encouraged to consult with their counsel about how to handle the pros and cons of a federal interlocutory appeal in the context of agreements mandating or providing arbitration.