On June 23, 2023, the U.S. Supreme Court decided Coinbase v. Bielski, ruling by a narrow majority that a U.S. district court must stay its pre-trial and trial proceedings while a party appeals a denial of a motion to compel arbitration. Coinbase, Inc. v. Bielski, No. 22-105, 2023 WL 4138983 (U.S. June 23, 2023).
Section 16(a) of the Federal Arbitration Act (FAA) allows a party to appeal a court order denying the party’s motion to compel arbitration—i.e. an order saying that a dispute belongs in litigation rather than arbitration. This represents an exception to the usual rule that parties may appeal only final judgments.
When an appellate court reviews a district court denial, the rest of the case remains at the district court level. Section 16(a) does not, however, state whether district court proceedings must be automatically stayed pending appeal. For several years, the U.S. Courts of Appeals were split on the availability of an automatic stay. Coinbase finally settles this question, announcing a clear rule that non-frivolous appeals of orders denying motions to compel arbitration trigger automatic stays of proceedings in the district court pending the resolution of the appeal.
Coinbase
constitutes a significant win for parties seeking to arbitrate because appeals of orders denying motions to compel arbitration often take months or longer, during which the parties would have to litigate their case in the forum to which they allegedly did not agree. This “pro-arbitration” outcome ensures that a party seeking arbitration (by appealing a denial of its motion to compel arbitration) is not deprived of the benefits of arbitration—including efficiency, cost-effectiveness, less intrusive discovery, confidentiality, and procedural flexibility—by being forced to litigate its dispute pending appeal. It also ensures that plaintiffs, particularly alleged class plaintiffs, are not able to use the threat of expensive discovery while an appeal is pending as negotiating leverage.
Background
Coinbase, one of the largest cryptocurrency exchange platforms in the United States, faced a class action lawsuit brought by a customer in the U.S. District Court for the Northern District of California. Coinbase moved to compel arbitration based on the broad arbitration clause in its user agreements. The district court denied Coinbase’s motion to compel arbitration, holding that the user agreement was unconscionable under California law.
Coinbase appealed the denial of its motion to the U.S. Court of Appeals for the Ninth Circuit and sought to stay litigation while the appeal was ongoing. The District Court refused to stay the litigation pending appeal, forcing Coinbase to simultaneously defend itself against the putative class action before the District Court and pursue its appeal in the Ninth Circuit. The Ninth Circuit then denied Coinbase’s motion for a stay pending appeal and declined to revisit en banc its decades-old decision in Britton v. Co-op Banking Grp., 916 F.2d 1405, 1412 (9th Cir. 1990), which held that automatic stays were unwarranted for appeals from denials of a motion to compel arbitration. See Bielski v. Coinbase, 2022 WL 3095991 (9th Cir. July 11, 2022). The Ninth Circuit’s approach, which aligned with the approach of the Second and Fifth Circuits, split from that of the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits. The case thus landed before the Supreme Court.
As of the date of its opening brief in the Supreme Court, and since filing its appeal in the Ninth Circuit, Coinbase had spent nine months and 500 hours litigating its case before the District Court—i.e., in the forum to which it allegedly did not agree. Because the case was not stayed, during that time, Coinbase had to answer the complaint, oppose a motion to appoint interim class counsel, attend a case management conference, and brief motion to dismiss a newly amended class-action complaint and to compel arbitration of the claims of newly added class representatives. Coinbase also received plaintiffs’ discovery requests and was working on responses while simultaneously briefing its case in the Supreme Court. See Brief for Petitioner at 15, Coinbase v. Bielski, 2023 WL 425097.
The Supreme Court’s Decision
The sole question before the Supreme Court was whether a district court must stay its proceedings when a party appeals its order denying a motion to compel arbitration. A five-Justice majority answered yes. The majority reasoned that Congress enacted Section 16(a) of the FAA against the “clear background principle” prescribed by Griggs v. Provident Consumer Discount Co., 459 U. S. 56, 58 (1982), that an appeal divests the district court of control of those aspects of the case involved in the appeal. In the majority’s view, because an appeal of an order denying a motion to compel arbitration raised the question of whether a court or an arbitral tribunal should decide the case, the appeal concerned the entire case and therefore divested the district court of control of the entire case. Coinbase, 2023 WL 4138983, at *1.
The majority also highlighted two policy reasons supporting an automatic stay pending appeal. First, it noted that allowing the district court to move forward with litigation risked the irretrievable loss of “many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like).” Id. at *4. In these circumstances, even if the appellate court ultimately concluded that the case belonged in arbitration all along, continuation of proceedings in the district court could “largely defeat[] the point of the appeal.” Id. Second, absent an automatic stay, parties could be coerced to settle to avoid litigation—especially class actions exposing them to “the possibility of colossal liability”—that they had contracted to avoid through arbitration. Id. The majority therefore concluded that a right to appeal an order denying a motion to compel arbitration without an automatic stay was “like a lock without a key, a bat without a ball, a computer without a keyboard—in other words, not especially sensible.” Id.
According to the majority, the availability of a discretionary stay would not suffice to protect the rights of a party seeking to arbitrate. As the majority explained, courts applying the usual standard for a discretionary stay often deny stays in Section 16(a) appeals because they do not consider litigation-related burdens (of going forward with the case in the district court) to constitute irreparable harm. Id. at *6.
The four dissenting Justices criticized the majority’s “mandatory-general-stay rule” as “com[ing] out of nowhere” and lacking basis in the FAA or prior decisions. Id. at *7 (Jackson, J. dissenting). They warned that, under the majority’s rule, “any defendant that devises a non-frivolous argument for arbitration can not only appeal, but also press pause on the case—leaving plaintiffs to suffer harm, lose evidence, and bleed dry their patience and funding in the meantime.” Id. at *14. The dissenting Justices would have preferred a case-by-case approach, which would have allowed district courts to use their discretionary powers to stay proceedings pending an interlocutory appeal after balancing the interests in a particular case. Id. at *9.
Key Takeaways
- Coinbase announces a clear rule that a district court must stay pre-trial and trial proceedings—including class certification and discovery—pending a non-frivolous appeal of a district court order denying a motion to compel arbitration under Section 16(a) of the FAA.
- For parties seeking to arbitrate, the Coinbase rule preserves the bargained-for benefits of arbitration—for example, the avoidance of intrusive and costly discovery—when an interlocutory appeal is ongoing. It also prevents parties from being coerced into settling cases to avoid burdensome (and potentially unnecessary) litigation costs pending interlocutory appeal.
- Coinbase overrules case law in the Ninth, Second, and Fifth Circuits rejecting the availability of automatic stays. This means that automatic stays are now available in key business jurisdictions such as California, New York, and Texas, and defendants there no longer face the risk of simultaneously defending district court litigation while pursuing an interlocutory appeal.
- For parties seeking to resist arbitration, most likely plaintiffs who brought a lawsuit in court allegedly in violation of the arbitration clause, an automatic stay means that the resolution of their claims will be stayed pending appeal, possibly creating a disincentive to oppose a motion to compel arbitration.
