A Look at the 3/21 #SCOTUS Arguments: When Is an Arbitration Appeal Stay Really a Stay?

CPR Speaks,

By Cenadra Gopala-Foster & Russ Bleemer

Tuesday’s U.S. Supreme Court argument in Coinbase Inc. v. Bielski, No. 22-105, explored the effect of a stay request when a U.S. District Court order denying arbitration is on appeal.

The Supreme Court, which has shown strong support for sending cases with arbitration agreements to the ADR process, had concerns about interfering with the trial court's judgment that allowed the consolidated cases to proceed while the statutory right to appeal the arbitration denial was still underway.

The case likely will turn on that point. Justice Sonia Sotomayor summarized the underlying principle of a pivotal case on the effects of a stay under an appeal, Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982) (per curiam), noting that it applied equally to the lower and higher courts: “Each court will respect that [they] will stay [proceedings] only if we threaten to moot out each other’s point.”

Neil Katyal, a partner in the Washington, D.C., office of Hogan Lovells, who represented petitioner Coinbase, faced skeptical questioning from the Court’s liberal wing on whether the Griggs principle created an automatic-stay effect on trial court litigation while there is a pending appeal on a court's refusal to compel arbitration. Katyal argued that anything less than a full litigation stay would infringe on the party's negotiated right right to arbitrate.

Katyal analogized the automatic stay effect of Federal Arbitration Act Sec. 16(a) to the principles of qualified immunity, double jeopardy, and state sovereign immunity, where there is silence regarding an automatic stay, but pending appeal of these issues stay lower court proceedings.

“There’s an automatic stay in all [of these instances]” said Katyal in response to questioning by Justice Elena Kagan.

Justice Ketanji Brown Jackson questioned whether Sec. 16(a) is silent on the point, noting “a couple places in which it appears as though Congress was actually thinking about the interaction of appeals and stays in the context. 16(b) tells us that you have no appeals from orders granting stays."

Katyal conceded that not everything is necessarily stayed, but maintained that his client, a web-based cryptocurrency platform, would lose the benefit of the arbitration agreement it has bargained for by being forced to continue to litigate while its denial order was on appeal in the Ninth U.S. Circuit Court of Appeals. “[T]he very question on appeal,” he said, “is, Does the district court have any authority at all to proceed?—then [whether] actions taken, whether it’s deciding a motion to dismiss or ordering discovery—and discovery can come out and spill out into the open, which is the very thing that arbitration agreements are bargained for to prevent against.” 

Added Katyal, “All that toothpaste can’t be put back in the tube.”

But the Court pushed back against Katyal’s 16(a) automatic stay effect by focusing on the textual inconsistencies in the FAA where there are explicit mentions of abrogating the lower’s court jurisdiction. Justice Sotomayor said, “[A]ll I know is that when Congress thinks about a stay, it either says yes, do it, or no, don’t do it.  . . . When it’s not thinking about a stay, it doesn’t say anything.”

Justice Kagan took issue with Katyal’s use of Griggs to potentially override Congressional intent. “You’re suggesting that every time Congress wants an immediate appeal, it also wants an automatic stay,” said Kagan, “But Congress might well say what we want is an immediate appeal and a discretionary stay regime.”

Katyal quickly agreed, and Kagan suggested that if Griggs applied, since “it’s a judge-made exception, we should read it narrowly.”

Katyal’s responded with a focus on FAA Section 3, which provides stays when an action is referred to arbitration as opposed to Coinbase, which seeks a stay while an appeal is made over an order denying arbitration. He said the section explicitly provides an “affirmative authorization of a stay pending arbitration” because in that scenario, there is no background divesture rule, like Griggs.  So “Congress had to say something about it because it had no background rule,” argued Kaytal, adding, “It’s an entirely different situation.”

Other justices inquired about the practical implications of not having an automatic stay accompanying an interlocutory appeal for motion to compel arbitration. The speed of litigation, cost, access to discovery, and concerns about confidentiality were raised, with Katyal noting that he was not making a policy argument. “We are saying that the bargained-for right . . . what we agreed to, we have a right to immediately appeal . . . and that right will get undone in the interim because litigation, even under the fastest timetable, takes some time.”

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Hassan Zavareei, a name partner in Washington office of Tycko & Zavareei, who represents the original plaintiffs alleging consumer fraud against Coinbase, countered that the irreparable damage the company alleged was minimal during an appeal, and denied the Griggs’ divestiture rule that Kaytal supported even existed. 

Zavareei’s said that the Griggs divestiture rule “is a simple principle that says two courts should not be deciding the same issue at the same time,” concluding his opening statement, “and it has no bearing in this instance.”

Justice Brett Kavanaugh stated Griggs does exist, and the question was whether it applies to the case as a background principle.  He said to “look to the existing body of the U.S. Code to figure out what Congress usually does.”

Justice Clarence Thomas questioned what the irreparable harm might be in whether a stay is issued. Zavareei replied that the respondents’ position might suffer if there were “especially lengthy appeals”; when there is no formal discovery allowed under the arbitration, and where the clause forbids class claims.

During the respondents' argument, the Court was clearly concerned that allowing the litigation to proceed while an appeal about arbitrability was pending could gut the meaning of Federal Arbitration Act Sec. 16, which allows appeals and stays. Rather, Zavareei’s interpretation of FAA 16(a) was that Congress was tilting the scales in favor of arbitration by expediting an appeal of a motion to compel arbitration--nothing more or less.

Justice Kavanaugh further pressed Zavareei on the potential for--while appeals of arbitration orders were not accompanied by a litigation stay-- “coerced settlement” problems with the potential access to discovery in litigation that would have been unavailable in the arbitration forum.

Zavareei said that Kavanaugh’s policy concern should have been addressed by Congress. Kavanaugh asked whether faster appeals would solve the respondents' stay issue, and Zavareei hesitatingly agreed, but said it wouldn’t cure Coinbase’s issue, because the company was seeking to delay the case.

* * * 

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

The issue in the matter, which consolidated the cases, is whether a non-frivolous appeal of the denial of a motion to compel arbitration ousts a district court’s jurisdiction to proceed with litigation pending appeal.

The issue centers around the procedures to determine whether a dispute should be resolved through litigation or arbitration--here, after two separate California federal district courts denied Coinbase’s motion to compel arbitration in two customer class actions. In the Bielski litigation, the district court found the arbitration agreement and its delegation clause unconscionable. For the Suski litigation, the court found the arbitration agreement was not applicable to the dispute.

If a motion to compel arbitration is denied, the FAA Sec. 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 U.S. Circuit of Appeals. After the Supreme Court took the case, the Ninth Circuit deferred its appellate decision—not wanting to interfere with the Supreme Court’s decision but further underscoring the urgency of the Court’s review.

Coinbase’s 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 is based on the petitioner’s plain FAA interpretation, 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. See Griggs, above.

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). 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 contended, and Neil Katyal argued, at the lunchtime session in the nation’s top Court.

On the other side of the issue are Coinbase customers Bielski and Suski, with two separate cases. The main argument in their joint brief is that the Ninth Circuit’s Griggs application, holding that a party losing a motion to compel arbitration is not entitled to an automatic stay for proceedings pending its appeal of the ruling, is correct. Hassan Zavareei made textual arguments by highlighting the FAA that boosted the original plaintiffs--now, respondents’--position that trial-court proceedings are not necessarily halted while there is a pending appeal.

 Furthermore, since the issue of arbitrability was the only substantive issue presented on appeal, the respondents contended, the district court could proceed with the case on the merits. They cited the Supreme Court itself, explaining that it has held that the merits of claims are “easily severable" from the dispute over the arbitrability of those claims. Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 21 (1983).

Their briefs on both sides stressed that every circuit presented with an opportunity to address the issue has applied Griggs. But the respondents noted that although the Ninth Circuit’s view is in the minority, the Second U.S. Circuit Court of Appeals adopted it when applying Griggs under similar circumstances, concluding, “further district court proceedings in a case are not ‘involved in’ the appeal of an order refusing arbitration.” Motorola Credit Corp. v. Uzan, 388 F.3d 39, 53 (2d Cir. 2004).

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Late Tuesday afternoon, the Supreme Court posted links to the oral arguments' audio, here, and the transcript, here.

For amicus briefs from consumer groups in support of respondents Abraham Bielski and David Suski. See Cenadra Gopala-Foster, “#SCOTUS’s Arbitration Appeals: Why the Case Should Continue When a District Court Denies ADR,” CPR Speaks (Mar.17) (available here).

For amicus briefs from the business community in support of Coinbase, a web-based company that provides a platform for buying and selling digital currency, were filed and then posted by the Court in January.  See Cenadra Gopala-Foster, “Defense Friends: Coinbase’s #SCOTUS Amicus On Why the Ninth Circuit Should Be Reversed,” CPR Speaks (Feb. 28) (available at bit.ly/3TieFHf).

For more background on Coinbase, see Cenadra Gopala-Foster, “Arbitration’s SCOTUS Return: Bitcoin Firm Seeks to Halt Litigation While ADR Is on Appeal,” CPR Speaks (Feb. 21) (available at bit.ly/3Jo7JUh).