Staying Put: Supreme Court Holds that District Courts Must Stay Proceedings Pending Arbitration Appeals

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On June 23, 2023, in Coinbase, Inc. v. Bielski, the Supreme Court resolved a deeply divided circuit court split and ruled that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. Justice Kavanaugh delivered the opinion of the Court, with Justices Roberts, Alito, Gorsuch, and Barrett joining the majority. Justice Jackson filed a dissenting opinion, in which Justices Sotomayor and Kagan joined in full, and in which Justice Thomas joined in part. The 5-4 decision has far-reaching implications for class action strategy and practice when arbitration provisions are at issue.

The Underlying Dispute Concerning Whether Proceedings Must Be Stayed Pending Arbitration Appeals

In the underlying case, Coinbase filed a motion to compel arbitration based on its user agreement following the filing of a putative class action on behalf of Coinbase users who alleged the company failed to replace funds fraudulently taken from user accounts. The district court denied that motion. Coinbase filed an interlocutory appeal to the Ninth Circuit under Federal Arbitration Act, 9 U. S. C. §16(a). Section 16(a) authorizes an interlocutory appeal from the denial of a motion to compel arbitration. Coinbase also moved to stay its proceedings before the district court pending resolution of the appeal. The district court denied Coinbase’s motion to stay, and the Ninth Circuit also denied an application for a stay pending appeal.

The Ninth Circuit’s decision highlighted a circuit split on the question of whether courts have discretion to deny a stay under the traditional factors or whether underlying proceedings must be automatically stayed. Six circuits—the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits—have held that a non-frivolous appeal of the denial of a motion to compel arbitration divests the district court of jurisdiction, thereby automatically staying proceedings in the district court. Three circuits—the Second, Fifth, and Ninth Circuits—have held the opposite. Although the First Circuit had not specifically addressed the issue, two courts within the First Circuit have expressly held that an interlocutory appeal of the denial of a motion to stay and compel arbitration under the FAA divests the district court of jurisdiction, thus requiring a stay of all other aspects of the case pending appeal. See Combined Energies v. CCI, Inc., 495 F. Supp. 2d 142 (D. Me. 2007) (Woodcock, J.); Narragansett Elec. Co. v. Constellation Energy Commodities Grp., Inc., 563 F. Supp. 2d 325 (D.R.I. 2008) (Smith, J.).

The Supreme Court’s Reasoning in Requiring an Automatic Stay under Section 16(a) of the Federal Arbitration Act

The Supreme Court reasoned that, while Section 16(a) is silent on whether district court proceedings must be stayed pending resolution of an interlocutory appeal, Congress enacted the FAA under a backdrop of the Court’s precedent in Griggs v. Provident Consumer Discount Co., 459 U. S. 56 (1982). The Court determined that the framework set forth in Griggs would resolve the question before it because, when a question on appeal is whether the case belongs in arbitration, the entire case is “involved in the appeal” and should not proceed pending appellate resolution. The Court was not persuaded that the absence of an explicit stay requirement indicated other Congressional intent or that ordinary discretionary stay factors would adequately protect parties’ rights. Importantly, the Court rejected arguments that questions of arbitrability are severable from the merits of underlying disputes and considered the threshold question of arbitrability to always involve the remainder of the case in the appeal.

On this point, the dissent was in sharp contrast, noting that in interlocutory appeals of motions to compel arbitration, only the arbitrability order is on appeal, not the merits. The dissent faulted the majority for its cursory discussion of severability, which it argued did not justify treating easily severable matters as intertwined. The dissent also argued that the majority’s reliance on a background rule based on Griggs was overly expansive and misplaced because no case had imposed a mandatory general stay of proceedings pending an interlocutory appeal at the time Section 16(a) was enacted. The dissent expressed concern that the majority’s rule would prevent district courts from crafting case-specific solutions to balance all interests at stake, which outcome would have been provided under the ordinary discretionary stay factors.

Takeaways from the Coinbase Decision

While the Coinbase decision will have the largest impact in the Second, Fifth, and Ninth Circuits, where district courts previously exercised discretion over whether to issue stays pending appeal, the decision also makes firm previously unsettled territory within the First Circuit. A benefit of the decision is  national uniformity in the automatic stay of proceedings pending Section 16(a) appeals, providing predictability across jurisdictions. The Court’s opinion will also have practical effects, especially for class action defendants deciding whether to seek appellate review of motions to compel arbitration. What remains to be seen is whether concerns raised in both the majority and dissenting opinions will come to pass, including whether appeals will “proceed with appropriate expedition” (from the majority) and whether the ruling will have “destabilizing consequences” that could “upend federal litigation as we know it” by opening a door to “stop the trial court proceedings in their tracks” far beyond the Section 16(a) context (from the dissent). There is certainly a possibility, as Justice Jackson notes, that discretionary appeals from class certification decisions under Federal Rule 23(f) could render an entire case “involved in the appeal” under the Court’s application of Griggs, and the Court may be invited to clarify the reach of its Coinbase ruling in years to come.