The U.S. Supreme Court heard and resolved the question of whether district court must stay its pre-trial and trial proceedings while the interlocutory appeal regarding denial of a motion to compel arbitration is ongoing.[i]  The Court held the district court must stay proceedings during the pendency of the interlocutory appeal on arbitrability.[ii]

Underlying case

In the Northern District of California, a putative class action of users of Coinbase, an online crypto and government-issued currencies platform, alleged Coinbase failed to return users’ funds that were fraudulently removed. The putative plaintiffs’ User Agreements with Coinbase included an arbitration provision requiring disputes under the agreements be resolved in arbitration. Coinbase’s motion to compel arbitration was denied by the district court.

Coinbase filed an interlocutory appeal to the Ninth Circuit Court of Appeals and filed motions in both the Ninth Circuit and the district court to stay proceedings until the interlocutory appeal was decided. Both courts denied the motions.

The U.S. Supreme Court granted certiorari to resolve disagreement among the appellate courts on the issue of a stay during an interlocutory appeal.[iii]

In a lengthy decision by Justice Kavanaugh, in which Roberts, Alito, Gorsuch, and Barrett joined and which Thomas joined in part, the Court noted the Ninth Circuit diverged from most other circuits that hold proceedings must be stayed during the pendency of the interlocutory appeal on the question of arbitrability.[iv] The Court agreed with the majority of the circuits and other sources and found the proceedings must be stayed pending the decision on the interlocutory appeal as to a denied motion to compel arbitration.[v]

The Court noted the Federal Arbitration Act, 9 U. S. C. §16(a), which governs arbitration agreements, provides for interlocutory appeals regarding arbitrability but does not state whether proceedings are stayed while the interlocutory appeal is pending.[vi] It also indicated the Court has clear precedents that “an appeal including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal’.”[vii]

The Court’s reasoning was lengthy but relied on prior case law and common sense arguments. Referring to prior precedent, the Court found: “Griggs dictates that the district court must stay its proceedings while the interlocutory appeal on arbitrability is ongoing.”[viii] The Court noted case law from most circuits also support its decision. In addition, common sense supports its conclusion because proceeding with litigation while an appeal is pending would forfeit the benefits of arbitration that were bargained for by the parties.[ix]

The Court also noted not staying proceedings when there is interlocutory appeal regarding arbitrability could also force an unintended and less beneficial settlement through a sense of coercion (which is more apparent in class actions), in order to avoid the lower court proceedings while the interlocutory appeal is pending.[x] The Court noted “the Griggs rule” escapes these potentially disadvantageous outcomes.[xi]

In arriving at its decision, the Court also considered that when Congress enacts laws, it generally specifies when there are not to be automatic stays with interlocutory appeals.  The Court went on to state: “Since the creation of the modern courts of appeals system in 1891, Congress has enacted multiple statutory ‘non-stay’ provisions.”[xii] It noted one such provision was enacted the day before 9 U. S. C. §16(a), involved here, showing Congress explicitly articulated when it wanted the automatic stay to not apply.[xiii] The Court found this congressional practice “reflects and reinforces the Griggs rule.”[xiv]

The Court also took great care to shut down each of the plaintiff’s arguments against the stay. The Court held district courts must stay proceedings during the pendency of an interlocutory appeal as to arbitrability and then reversed and remanded.[xv]

Remand Note: Expediting of interlocutory appeals regarding arbitrability?

The Court reversed and remanded to the Ninth Circuit and included a note or edict of sorts to the lower court and to all the circuits about timeliness of interlocutory appeals in cases of arbitrability. The Court stated: “[o]n remand, we anticipate that the Ninth Circuit here, as we anticipate in §16(a) appeals more generally, will proceed with appropriate expedition when considering Coinbase’s interlocutory appeal from the denial of the motion to compel arbitration.”[xvi] The Court did not elaborate further on this.

Dissent by Justice Jackson

Justice Jackson, joined by Justice Sotomayor and Justice Kagan, and in part by Justice Thomas, dissent because they find the Court’s “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.”[xvii] Justice Jackson believes there is no basis for taking away the “discretion traditionally entrusted” to the trial judge to decide if the case that remains should proceed or be stayed pending appeal.

Takeaway

The Supreme Court’s decision in Coinbase will provide the needed consistency and one track for defendants with arbitration clauses seeking to enforce them. With the automatic stay when a party is required to file an interlocutory appeal of the denial of a motion to compel arbitration, they will not be required to litigate the issues that should be arbitrated while also waiting for the Court to rule on the appeal, which makes the decision less and less relevant as time progresses. It also appears from the language of the Supreme Court’s remand that interlocutory appeals on the issue of arbitrability may be decided more quickly going forward – at least in the Ninth Circuit, but arguably in all circuits.

Insurance companies (as well as other parties with cases being litigated in federal court which involve an arbitration clause or provision) who want to seek to enforce arbitration now have a better option for appeal if first denied in the district court. Proceeding to an interlocutory appeal will automatically stay the proceedings in the district court until there is an answer as to arbitrability. This simplifies the process, as parties will not be concurrently litigating, watching two sets of deadlines, or, most importantly, engaging in extra litigation that was not part of the bargain.

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Sources

[i] Coinbase, Inc. v. Bielski, No. 22–105 (U.S. June 23, 2023)(5-3 opinion)(J. Jackson dissenting).

[ii] Id. at pp. 4, 6.

[iii] Id. at p. 5.

[iv] Id. at p. 5.

[v] Id. at p. 6.

[vi] Id. at p. 6.

[vii] Id. (quoting Griggs v. Provident Consumer Discount Co., 459 U. S. 56, 58 (1982)).

[viii] Id. at p. 7.

[ix] Id. at pp. 7-8.

[x] Id. at p. 8 (“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.”)

[xi] Id. at p. 9.

[xii] Id. at p. 10.

[xiii] See id.

[xiv] Id. at p. 9.

[xv] Id. at 10, 13.

[xvi] Id. at p. 13 (emphasis added.)

[xvii] Id. at p. 14.