On June 23, 2023, the U.S. Supreme Court issued a narrow 5-4 decision in Coinbase, Inc. v. Bielski, 2023 U.S. LEXIS 2636, at *1 (U.S. June 23, 2023), holding that a district court must stay its proceedings while an interlocutory appeal of a denial of a motion to compel arbitration is ongoing.
Specifically, the Supreme Court reversed the Ninth Circuit's decision to decline the stay brought by defendant Coinbase. Coinbase challenged the district court's denial of its motion to compel arbitration pursuant to section 16 of the Federal Arbitration Act (FAA). 9 U.S.C. section 16(a)(1). Section 16 allows movants to seek an interlocutory appeal of the denial of a motion to compel arbitration, but it does not say whether that appeal triggers a general stay during the appeal.
The circuits were split. Most circuit courts had held that an appeal of the denial of a motion to compel arbitration automatically stays the trial court proceedings. The Second, Fifth, and Ninth Circuits held that it does not. The Court resolved this split in favor of the majority view.
In the majority opinion by Justice Kavanaugh, the Court relied on its interpretation of the text of section 16, as well as the Griggs principle that "[a]n appeal, including an interlocutory appeal, 'divests the district court of its control over those aspects of the case involved in the appeal.'" Furthermore, whether a case is triable is an issue that extends to "the entire case." Therefore, according to the majority, an appeal on the question of arbitration versus trial must divest the district court of its ability to control the case completely. According to the majority, Congress drafted section 16 in light of this idea.
This approach, wrote Justice Kavanaugh, "reflects common sense," as proceeding with an entire trial would negate the benefits that parties seek to gain by agreeing to arbitration in the first place. The majority continued that "[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 – in other words, not especially sensible."
Writing for the minority, Justice Jackson disputed the majority's statutory interpretation of the FAA. Agreeing that the district court should be divested of the question of arbitrability pending appeal, the minority distinguished that question from those that remain before the trial court: "whether the claims have merit, whether the parties are entitled to the discovery they seek, and so on." The minority went on to characterize the decision as a windfall to defendants seeking arbitration, as "any defendant that devises a non-frivolous argument for arbitration can not only appeal, but also press pause on the cause – leaving plaintiffs to suffer harm, lose evidence, and bleed dry their patience and funding in the meantime."
The decision is good news for entities that include arbitration in their contracts. An appeal of an adverse order compelling arbitration will keep the trial case stayed. This provides a key protection to arbitration, as without a stay, the appeal will be moot if the parties continue to litigate. The Coinbase decision stands as a firm reminder that the Supreme Court remains a stalwart guardian of arbitration.
Client Alert 2023-152
This article is presented for informational purposes only and is not intended to constitute legal advice.
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