Supreme Court: While a Denial of Arbitrability Is Appealed, a Stay of Litigation Is Mandatory

CPR Speaks,

By Russ Bleemer & Cenadra Gopala-Foster

The U.S. Supreme Court this morning decided the 2022-2023 term’s sole arbitration case. It reversed a U.S. Ninth Circuit Court of Appeal ruling that refused to pause cases while denials to compel arbitration were appealed.

The decision is a strong endorsement for defendants seeking to arbitrate customer disputes.  But it’s a close call for the current Court. Coinbase Inc. v. Bielski, No. 22-105, is a 5-4 decision, with Justice Brett M. Kavanaugh writing for the majority that litigation is stayed while an arbitrability appeal is pending under the seminal case on so-called interlocutory appeals, Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982).

“The common practice of staying district court proceedings during the pendency of an interlocutory appeal taken under §16(a) reflects common sense,” writes Kavanaugh.

But in her dissent, Justice Ketanji Brown Jackson writes that the Court today “invents a new stay rule perpetually favoring one class of litigants—defendants seeking arbitration.”

Kavanaugh was joined by Chief Justice John G. Roberts Jr., and Justices Samuel A. Alito Jr., Neil M. Gorsuch, and Amy Coney Barrett. Jackson was joined by Justices Sonia Sotomayor and Elena Kagan.  Justice Clarence Thomas also signed onto the dissent but didn't join in Jackson's initial analysis on Congress's interplay of the Federal Arbitration Act and the statute providing for stays of litigation generally.

Today's opinion can be found here.    

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The Supreme Court had agreed to consider whether two proposed class actions by customers filing suit against San Francisco-based bitcoin platform provider Coinbase could move forward while the company appeals judges' rulings declining to compel its customers to arbitrate their claims.

The specific issue was whether a non-frivolous appeal of the denial of a motion to compel arbitration ousts a district courts jurisdiction to proceed with litigation pending appeal.

“[T]he Griggs rule requires that a district court stay its proceedings while the interlocutory appeal on the question of arbitrability is ongoing,” holds the Court.

In his majority decision, Kavanaugh explains that plaintiff Abraham Bielski’s arguments that his case proceed at trial while the Ninth Circuit reviews Coinbase’s appeal of a denial of arbitration fails on five points:

  • The claim that allowing the stay would encourage frivolous appeals isn’t supported.
  • Federal Arbitration Act Section 3 provides for a stay of court proceedings pending arbitration, but not pending an appeal, and the statute on interlocutory appeals, 28 U. S. C. §1292(d)(4) was amended to provide for an automatic stay pending appeal in certain circumstances.
  • Applying the Griggs rule levels the field for arbitration, and wouldn’t favor the alternative dispute resolution process as Bielski contended. The rule “simply subjects arbitrability appeals to the same stay principles that courts apply in other analogous contexts where an interlocutory appeal is authorized, including qualified immunity and double jeopardy,” writes Kavanaugh.
  • “[E]xperience shows that Bielski is incorrect” that “ordinary discretionary stay factors would adequately protect parties’ rights to an interlocutory appellate determination of arbitrability,” the majority opinion states. For example, Kavanaugh writes, “District courts and courts of appeals applying the usual four-factor standard for a discretionary stay often deny stays in [appeals under FAA 9 U.S.C. §16(a), which authorizes an interlocutory appeal from the denial of a motion to compel arbitration] because courts applying that test often do not consider litigation-related burdens (here, from the continued District Court proceedings) to constitute irreparable harm.” [More on that point below.]
  • The argument that questions of arbitrability are “severable from the merits of the underlying disputes” under Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U. S. 1, 21 (1983), is rejected because, Kavanaugh explains, “the sole issue here is whether the district court’s authority to consider a case is 'involved in the appeal' when an appellate court considers the threshold question of arbitrability. Griggs, 459 U. S., at 58.  The answer is yes, and Moses H. Cone says nothing to the contrary.”

The Court reversed the Bielski decisión, but a case that had been consolidated into the Supreme Court matter involving another Coinbase customer, David Suski, was dismissed as improvidently granted.

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At the core of today’s case is the procedures to determine whether a dispute should be resolved through litigation or arbitration. Here, two separate California federal district courts had denied Coinbases motion to compel arbitration in two class actions by their customers. In the Bielski litigation the court found the arbitration agreement unconscionable, where the customer alleged, on his own and on behalf of a class, that funds had been taken from accounts fraudulently and not replaced. 

For the Suski litigation, dismissed today, the court found the arbitration agreement was not applicable to the dispute. The case alleged false advertising by Coinbase. (For more on the individual litigation matters, see this March 20 CPR Speaks post.)

If a motion to compel arbitration is denied, the Federal Arbitration Act under Section 16 gives the party seeking arbitration--here Coinbase--the right to an interlocutory appeal. Coinbase did exactly that and appealed both rulings to the Ninth Circuit of Appeals.

After the Supreme Court took the case, the Ninth Circuit deferred its appellate decision—not wanting to interfere with the Supreme Courts decision but further underscoring the urgency of the Courts review. While Bielski’s case was remanded today, the next step is expected to be at the California-based federal appeals court to determine whether the U.S. District Court’s denial of arbitration stands.

Coinbases main argument was that a non-frivolous appeal of the denial of a motion to compel arbitration divests the district court of its control. The argument, largely successful today, was based on the petitioners plain interpretation of the Federal Arbitration Act, and what it describes as the controlling rule that an appeal divests the district court of its control over those aspects of the case involved in the appeal. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982) (per curiam).

The Court’s return to Griggs in this morning’s opinion was not a surprise.  The case was at the center of the March 21 Coinbase oral arguments, with Coinbase’s attorney facing tough questioning on the ability of the precedent to halt lower court proceedings while an appeal is pending. See Cenadra Gopala-Foster, “A Look at the 3/21 #SCOTUS Arguments: When Is an Arbitration Appeal Stay Really a Stay?” CPR Speaks (March 21) (available here) (more Griggs analysis in the Coinbase case was featured on CPR Speaks on Feb. 21, here).

Specifically, Coinbase argued that Congress made an exception for arbitration in the FAA that grants defendants the statutory right to an immediate appeal. See 9 U.S.C. § 16(a) linked above. In doing so, Congress recognized that an arbitration agreement provides a right not to litigate the dispute in a court.” Blinco v. Green Tree Servicing LLC, 366 F.3d 1249, 1252 (11th Cir.) Once a defendant is wrongfully forced to proceed in federal court, despite a pending appeal, the defendant loses that right forever, Coinbase argues.

It was a winning argument. Majority opinion author Brett Kavanaugh was focused in the Supreme Court oral argument on the potential damage by continuing litigation, vetting the concern with Coinbase attorney Neil Katyal, a partner in the Washington, D.C., office of Hogan Lovells—a point that returned, prominently, in Kavanaugh's majority opinion.

On the other side of the issue were former Coinbase customers Bielski and Suski, with two separate cases. The main argument in their joint brief was that the Ninth Circuit applied Griggs, holding a party losing a motion to compel arbitration is not entitled to an automatic stay for proceedings pending its appeal of the ruling. Their textual argument was reinforced by highlighting numerous provisions, including one in the FAA, that do not require trial-court proceedings to halt while there is a pending appeal.

Furthermore, since the issue of arbitrability was the only substantive issue presented [on appeal],” the Ninth Circuit stated, the district court could proceed with the case on the merits.” Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (1990) (available here).

The Ninth Circuit also cited support by the Supreme Court, explaining that the nations top Court has held that the merits of claims are easily severable" from the dispute over the arbitrability of those claims. Moses H. Cone Meml Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 21 (1983) (available here). 

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Justice Brett Kavanaugh’s majority opinion resolves a circuit split. The opinion notes that the Ninth Circuit had precedent “under which an appeal from the denial of a motion to compel arbitration does not automatically stay district court proceedings.” Coinbase overrides that precedent.

The opinion also provides plenty of unequivocal support for arbitration and its advocates. “Griggs dictates that the district court must stay its proceedings while the interlocutory appeal on arbitrability is ongoing,” Kavanaugh writes, noting, “Absent an automatic stay of district court proceedings, Congress’s decision in [FAA] §16(a) to afford a right to an interlocutory appeal would be largely nullified.”

And without a stay, notes Kavanaugh--and going directly to the heart of arbitration’s purpose--"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."

He continues,

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 [former Second Circuit Judge Henry] Friendly called "blackmail settlements." [Citation omitted.]

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Justice Ketanji Brown Jackson’s dissent focuses more on the nature of the interlocutory appeal and its civil procedure implications than on arbitration.  But like Kavanaugh’s opinion, there is plenty of fodder for ADR  practitioners.

Jackson analyzes the Federal Arbitration Act’s application, contrasting FAA Sections 3 and 16, and blasting the majority opinion. “Section 3 pertains to a circumstance in which the trial court is ‘satisfied’ that an issue should be referred to arbitration,” she explained, noting that the law “expressly provides that the trial court ‘shall on application of one of the parties stay the trial of the action until such arbitration has been had.’” (The emphasis is added by the dissent).

Jackson continues, “[T]he contrast with §16 is stark. Congress specified a mandatory general stay of trial court proceedings in §3 (when the trial court determines that arbitration is warranted) but not §16(a) (when the court determines that arbitration is unwarranted).”

As a result, the dissent summarized, “The mandatory-general-stay rule is so untethered from §16 that the statutory text has no role in the Court’s reasoning.  . . . The statutes that the majority points to have nothing to do with arbitration or §16.  . . .”

But Jackson wasn’t done, focusing the dissent with criticism of the majority’s reliance on Griggs. She wrote,

Properly understood and applied here, Griggs divests the district court of control over only a narrow slice of the case. The interlocutory appeal addresses an order declining to compel arbitration. Griggs merely prevents the district court from modifying that order—i.e., Griggs prevents the district judge from revisiting whether to compel arbitration while the appeal is pending. Griggs does not stop the district court from proceeding on matters other than arbitrability.

Jackson continues, “The majority opinion, however, transmogrifies Griggs into a sweeping stay of ‘pre-trial and trial proceedings’ on not just arbitrability, but also the merits.  . . . The Court today expands Griggs beyond what the Con­gress that enacted §16 could have foreseen, let alone si­lently incorporated.”

The dissent explains why that’s an overbroad interpretation.  Under the majority opinion, writes Jackson, “if an interlocutory arbitrability appeal under §16(a) is pending, discovery must be stayed and the evidence must be lost. That is apparently so even if the parties agree they wish to proceed with discovery.” [Emphasis in the opinion.]

That, writes Jackson, isn’t how arbitration and litigation play out. “[R]eal-life parties do not agree with the majority that an interlocutory arbitrability appeal is pointless without an automatic stay,” the dissent states. “No stay was issued in this case, for example, yet Coinbase still pursued its interlocutory appeal. Nor did other parties stop bringing interlocutory arbitrability appeals in the Circuits that had interpreted §16 to impose no automatic stay.”

Warning that any defendant can “press pause” on a case with a nonfrivolous appeal, Jackson notes, “The Court today ventures down an uncharted path—and that way lies madness,” adding, “the mandatory-general-stay rule the Court adopts today would upend federal litigation as we know it.”

The dissent concludes with a call to Congress.  It states:

The mandatory-general-stay rule that the Court manufactures is unmoored from Congress’s commands and this Court’s precedent. And the windfall that the Court gives to defendants seeking arbitration, preferencing their interests over all others, is entirely unwarranted. The Court now mandates that result no matter how unjust that outcome is, according to traditional equitable standards, in a given case. This endeavor is unfounded, unwise, and—most fundamentally—not our role.

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Bleemer edits Alternatives to the High Cost of Litigation for CPR. Gopala-Foster, a student at the Howard University School of Law, was a Spring 2023 intern at CPR.