Supreme Court rules district court must stay proceedings pending appeal of arbitration denial

Coinbase Inc. v. Bielski
Date: June 23, 2023

Issue: Under Section 16(a) of the Federal Arbitration Act (FAA), must a district court stay its proceedings while an interlocutory appeal on the question of arbitration is pending?

Case Summary: In a 5-4 decision written by Justice Brett Kavanaugh, the U.S. Supreme Court ruled a district court must stay its proceedings while an interlocutory appeal on the question of arbitration is pending.

In the case, cryptocurrency (crypto) investors filed a putative class action in the Northern District of California against Coinbase, a cryptocurrency exchange, for its alleged failure to replace stolen funds from their accounts. Coinbase’s User Agreement with the plaintiffs contained an arbitration clause. Coinbase responded to plaintiffs’ lawsuit with a motion to compel arbitration, which district court denied. Coinbase then filed an interlocutory appeal to the Ninth Circuit and moved the district court to stay the proceedings pending resolution of that appeal. The district court denied the initial stay motion. Coinbase next sought a stay pending appeal in the Ninth Circuit, which the Ninth Circuit denied.

The circuit courts have split on whether a stay of the underlying litigation during the interlocutory appeal should be automatic. The Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits have ruled stays should be automatically granted, because allowing litigation to proceed while an appeal is pending eviscerates the benefits of arbitration. The Second, Fifth, and Ninth Circuits, however, have ruled the decision to stay is discretionary.

The Supreme Court reversed the Ninth Circuit and resolved the circuit split, ruling a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is pending. The majority relied on the Court’s prior decision in Griggs v. Provident Consumer Discount Company (1982). Griggs held that any appeal divests the district court of jurisdiction over those aspects of the case “involved in the appeal.” According to the majority, the “Griggs principle resolves this case” because “it makes no sense for trial to go forward while the court of appeals cogitates on whether there should be one.” As the majority explained, Section 16(a) of the FAA permits interlocutory appeal by right from a district court order denying a party’s motion to compel arbitration. Without an automatic stay of district court proceedings, the majority emphasized “Congress’ decision in § 16(a) to afford a right to an interlocutory appeal would be largely nullified.”

The majority also underscored its ruling would promote the benefits of arbitration. The majority explained allowing a case to proceed simultaneously in the district court and the court of appeals could “waste scarce judicial resources— which could be devoted to other pressing criminal or civil matters—on a dispute that will ultimately head to arbitration in any event.”  This scenario, according to the majority, “represents the worst possible outcome for parties and the courts: litigating a dispute in the district court only for the court of appeals to reverse and order the dispute arbitrated.” The majority concluded Griggs avoids this harmful result.

In dissent, Justice Ketanji Brown Jackson expressed concern about the majority’s “new rule.” Justice Brown declared “this mandatory-general-stay rule for interlocutory arbitrability appeals comes out of nowhere. No statute imposes it. Nor does any decision of this Court. Yet today’s majority invents a new stay rule perpetually favoring one class of litigants—defendants seeking arbitration.”

Bottom Line: The decision is a win for banks because it brings nationwide uniformity and predictability to arbitrability. Under the Ninth Circuit’s approach—now overruled by the Supreme Court—banks could be forced to litigate expensive cases while trying to appeal the threshold issue of arbitrability. The decision eliminates a tactic from potential plaintiffs to forum shop in the Second, Fifth, or Ninth Circuits in hopes of evading an arbitration clause.

Documents: Opinion