In a victory for parties seeking to compel arbitration, the U.S. Supreme Court held that a district court must stay the proceedings when a party seeks interlocutory appeal of an order denying a motion to compel arbitration.
Abraham Bielski filed a putative class action against online currency platform Coinbase, Inc. after a scammer emptied his account of more than $31,000.
Coinbase responded with a motion to compel arbitration pursuant to the agreement users sign for its online platform, which contains an arbitration provision.
A California federal court denied the motion. Coinbase filed an interlocutory appeal to the Ninth Circuit Court of Appeals and also moved to stay the district court proceedings pending resolution of the arbitrability issue on appeal.
The district court declined to stay its proceedings. The Ninth Circuit also declined to stay the district court proceedings, following its precedent under which an appeal from the denial of a motion to compel arbitration does not automatically stay district court proceedings – in contrast to the majority of the federal appellate courts.
Coinbase filed a petition for certiorari with the Supreme Court, which the justices granted to resolve the disagreement among the circuits.
Justice Brett Kavanaugh authored the majority opinion, which reversed the Ninth Circuit to hold that a district court must stay its pretrial and trial proceedings while the interlocutory appeal on arbitrability is ongoing.
Congress amended the FAA in 1988 to add §16(a), which provides for the immediate interlocutory appeal of orders denying motions to compel arbitration.
While the amendment does not say whether the district court proceedings must be stayed, Congress enacted §16(a) against a clear background principle that an appeal, including an interlocutory appeal, divests the district court of its control over those aspects of the case involved in the appeal.
This principle resolved the case, the majority said.
“If the district court could move forward with pretrial 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,” Justice Kavanaughwrote. “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.”
The “potential for coercion” is especially pronounced in class actions, Justice Kavanaugh added, where the possibility of sizable liability could lead to “blackmail settlements.”
“A right to interlocutory appeal of the arbitrability issue without an automatic stay of the district court proceedings is therefore like a lock without a key, a bat without a ball, a computer without a keyboard – in other words, not especially sensible,” he said.
None of Bielski’s arguments to the contrary found traction with the majority.
An automatic stay would not encourage frivolous appeals that would improperly delay district court proceedings, as the courts possess “robust tools” to prevent unwarranted delay; nor does requiring an automatic stay create a special, arbitration-preferring procedural rule, Justice Kavanaugh said.
The rule “simply subjects arbitrability appeals to the same stay principles that courts apply in other analogous contexts where an interlocutory appeal is authorized,” he wrote.
Justice Ketanji Brown Jackson authored a dissenting opinion joined by Justices Sonia Sotomayor, Elena Kagan and, for parts of the opinion, Clarence Thomas.
The “mandatory-general-stay rule for interlocutory arbitrability appeals comes out of nowhere,” with no basis in statute or prior decision of the Court, she wrote. “I see no basis here for wresting away the discretion traditionally entrusted to the judge closest to a case.”
To read the opinion in Coinbase, Inc. v. Bielski, click here.
Along with the Civil Justice Association of California, Manatt’s Benjamin Shatz filed an amicus brief supporting the stay.
Why it matters
The Court handed defendants seeking to compel arbitration a victory with the decision, which established a mandatory stay of district court proceedings pending appeal of a denial of a motion to compel arbitration.