This post first appeared on the Securities Arbitration Alert blog. The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.
The Supreme Court has decided Coinbase, Inc. v. Bielski, No. 22-105, ruling mostly along ideological lines that District Courts must stay underlying litigation while an appeal of a denial of a motion to compel arbitration is pending.
The 5-4 decision, which was released on June 23, was authored by Justice Kavanaugh. He was joined outright by Chief Justice Roberts, and Justices Alito, Barrett, and Gorsuch. Justice Jackson wrote a dissenting opinion, in which Justices Kagan and Sotomayor joined in full, and in which Justice Thomas joined for the most part.
Certiorari Petition
As reported in SAA 2023-47 (Dec. 15), the issue in this matter was a technical one, as described in the July 2022 Petition: “Under § 16(a) of the Federal Arbitration Act, when a district court denies a motion to compel arbitration, the party seeking arbitration may file an immediate interlocutory appeal. This Court has held that an appeal ‘divests the district court of its control over those aspects of the case involved in the appeal.’ Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982) (per curiam).[] The question presented is:
“Does a non-frivolous appeal of the denial of a motion to compel arbitration oust a district court’s jurisdiction to proceed with litigation pending appeal, as the Third, Fourth, Seventh, Tenth, Eleventh and D.C. Circuits have held, or does the district court retain discretion to proceed with litigation while the appeal is pending, as the Second, Fifth, and Ninth Circuits have held?” (links added by the Alert).
Case Below
We covered in SAA 2022-17 (May 5) the trial court decision below, Bielski v. Coinbase, Inc., No. C21-07478, 2022 WL 1062049 (N.D. Cal. Apr. 8, 2022). There, the District Court, applying California contract law, held that the predispute arbitration agreement covering the case before it was both substantively and procedurally unconscionable. The subsequent District Court and Ninth Circuit decisions declining to stay the case pending the appeal are unreported. We covered the SCOTUS case in detail in SAA 2023-11 (Mar. 16), and in a March 14 blog post, Reminder: Oral Argument in Coinbase is March 21. What You Need to Know.
The Oral Argument
With a full complement of Justices, the March 21 oral argument in this consolidated case was audio livestreamed via the SCOTUS Website. The discussion focused squarely on the intent of FAA section 16, with several references to Griggs and occasional references to “Timbuktu.” Coinbase’s counsel Neal Kumar Katyal asserted that the statute assumes a stay of the underlying District Court cases. He argued that allowing the District Court to proceed would result in the “toothpaste being out of the tube” with respect to aspects such as discovery and undue settlement pressure. The Court’s pro-arbitration wing was relatively quiet, with the bulk of the questions coming from Justices Kagan and Sotomayor (although Justice Thomas was atypically active). A key theme of these Justices was that, if Congress intended FAA section 16(a) to provide an automatic stay, it would have said so directly. Hassan Ali Zavareei, Counsel for the Suski Respondents, led with: “Congress means what it says and says what it means,” echoing the sentiments of the liberal wing Justices. For a comprehensive “chapter-and-verse” analysis, we recommend that readers peruse this March 21 CPR Speaks Blog post: Today’s #SCOTUS Arguments: When Is an Arbitration Appeal Stay Really a Stay?
Majority: There Must Be a Stay Pending Appeal
The core holding is short and sweet. Writes Justice Kavanaugh:
“When a federal district court denies a motion to compel arbitration, the losing party has a statutory right to an interlocutory appeal. See 9 U. S. C. §16(a). The sole question here is whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing. The answer is yes: The district court must stay its proceedings.” Why? “If the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along. Absent a stay, parties also could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration. That potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge Friendly called ‘blackmail settlements.’”
Griggs is Good Law
As to Griggs, the majority Opinion continues:
“Importantly, Congress’s longstanding practice both reflects and reinforces the Griggs rule. When Congress wants to authorize an interlocutory appeal and to automatically stay the district court proceedings during that appeal, Congress need not say anything about a stay. At least absent contrary indications, the background Griggs principle already requires an automatic stay of district court proceedings that relate to any aspect of the case involved in the appeal. By contrast, when Congress wants to authorize an interlocutory appeal, but not to automatically stay district court proceedings pending that appeal, Congress typically says so.”
A Parting Admonition to the Ninth Circuit
The Opinion closes with a parting admonition:
“We conclude that, after Coinbase appealed from the denial of its motion to compel arbitration, the District Court was required to stay its proceedings. On 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.”
Dissent: Fairness Calls for Discretion
Justice Jackson writes in Part I:
“When a federal court of appeals conducts interlocutory review of a trial court order, the rest of the case remains at the trial court level. Usually, the trial judge then makes a particularized determination upon request, based on the facts and circumstances of that case, as to whether the remaining part of the case should continue unabated or be paused (stayed) pending appeal. This discretionary decision-making promotes procedural fairness because it allows for a balancing of all relevant interests…. 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.”
“Never Mind” as to the Suski Parties
Buried in a footnote was this landmine: “The Court’s judgment today pertains to respondent Abraham Bielski. The writ of certiorari as to respondents David Suski et al. is dismissed as improvidently granted.
(ed: *As noted above, Justice Thomas joined as to Parts II, III and IV of the dissent. **The oral argument audio is here and the transcript can be found here. ***Our editorial comment after oral argument was: “We’re not willing to hazard a prediction as to where the Court will land, although to us the pro-arbitration wing seemed sympathetic to Coinbase’s arguments.”)
