Emphasizing Efficiency, Supreme Court Requires District Courts To Stay Proceedings During Interlocutory Appeal on Arbitrability

The Dispute

Coinbase operates an online platform through which customers can buy and sell various cryptocurrencies as well as standard fiat currencies like dollars, euros, and yen. The Coinbase User Agreement requires arbitration of all disputes — including disputes about whether a claim against Coinbase is subject to arbitration in the first place, a concept known as arbitrability.

Abraham Bielski was a Coinbase customer who agreed to this language. He lost about $30,000 from his digital wallet to a scammer who gained access to his account. Although he immediately contacted Coinbase, his efforts to work with customer service did not help; his funds were never restored. On September 24, 2021, he filed a lawsuit in the US District Court for the Northern District of California as a class action alleging that Coinbase violated the Electronic Funds Transfer Act by failing to return funds fraudulently removed from customers’ accounts.

Coinbase moved to compel arbitration of Bielski’s lawsuit, arguing that his claims were subject to arbitration based on the User Agreement. The District Court denied the motion, finding that the claims were not arbitrable because the arbitration provision was substantively and procedurally unconscionable under California law. Coinbase appealed based on Section 16 of the Federal Arbitration Act (FAA), which permits an appeal of a motion to compel arbitration before final judgment (a so-called “interlocutory” appeal).

Coinbase also asked the District Court to pause (or stay) the proceedings pending the resolution of its interlocutory appeal. In other words, Coinbase asked the trial court not to move forward with discovery, motion practice, and trial until the Ninth Circuit decided whether the whole dispute belonged in arbitration. The District Court denied that request, citing the “prevailing public interest in a just, speedy, and inexpensive determination of civil actions.” Coinbase then asked the Ninth Circuit to require the District Court to stay the underlying proceedings. Still, the Ninth Circuit also denied the request, relying on precedent that an appeal of the denial of a motion to compel arbitration does not result in an automatic stay.

Different circuits have addressed this question differently. While most circuits found that an automatic stay is required while an interlocutory appeal on arbitration is pending, the Second, Fifth, and Ninth circuits have all determined that a stay is discretionary; a trial judge can make the decision herself based on the facts of a particular case. The Supreme Court granted certiorari to resolve the circuit split.

The Court’s Opinion

Justice Brett Kavanaugh authored the opinion for a 5-4 majority. Recognizing that the FAA is silent on whether district courts are required to stay their proceedings during that appeal, the majority relied heavily on Griggs v. Provident Consumer Discount Co., 459 US 56 (1982), a Supreme Court case holding that an interlocutory appeal “divests the district court of its control over those aspects of the case involved in the appeal.” The majority concluded that “[t]he Griggs principle resolves this case” because the precise question on appeal is arbitrability, thus the district court’s very jurisdiction over the case is the issue on appeal. The majority concluded that the district court therefore loses its jurisdiction during the pendency of the appeal.

The majority bolstered its decision with pragmatic reasons because the interlocutory appeal right would be “largely nullified” if pre-trial and trial proceedings moved forward. “[M]any of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost,” the Court reasoned, if parties are forced to participate in a full-blown litigation “even if the court of appeals later concluded that the case actually had belonged in arbitration all along.” Additionally, allowing a case to proceed simultaneously in the district court and the circuit court “creates the possibility that the district court will waste scarce judicial resources . . . on a dispute that will ultimately head to arbitration in any event.”

For these reasons, the Court reversed the Ninth Circuit and required a stay pending appeal.

The Dissent

Justice Ketanji Brown Jackson filed a strong dissent, joined by Justices Elena Kagan and Sonia Sotomayor, and partially joined by Justice Clarence Thomas.

In Justice Jackson’s view, the majority essentially fabricated a rule requiring mandatory stays that does not exist in the FAA. In her view, the majority “invents a new stay rule perpetually favoring one class of litigants — defendants seeking arbitration.” Her dissent pointed out that when Congress enacted Section 16 of the FAA permitting interlocutory appeals, it approved a similar provision in a different law that expressly approved mandatory stays pending appeal. Thus, Congress did not mandate the stay in the arbitration context, which the Court’s majority now requires. The dissent also pointed out that normally the trial judge 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 level of discretion “promotes procedural fairness because it allows for a balancing of all relevant interests” by the judge who is “closest to a case.”

Justice Jackson wrote that Griggs stands for a more modest proposition than the majority’s description: that two courts should not have control over the same order simultaneously. Applying that principle here, Griggs should only divest the district court over the arbitrability decision but not control over the entire litigation.

She also disputes the majority’s view that a stay is most efficient. Pausing the district court case for months while the appeal runs its course is also an inefficient outcome but places that inefficiency on the shoulders of the party opposing arbitration. This new rule could benefit defendants at the expense of plaintiffs: “Now, 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.”

While the ideological alignment of Justice Thomas with the three more traditionally liberal justices may seem unusual, he has a long history of dissent on FAA-related questions. Justice Thomas has departed from the Court’s majority since 1995, particularly on the expanding scope of the FAA.

Our Takeaway

Efficiency is traditionally advanced as a benefit of arbitration. While civil litigation is marked by complex procedural rules, expansive discovery, and potential appeals, arbitration typically takes the opposite approach — pragmatic procedural rules, highly circumscribed discovery, and no automatic right of appeal.

The Supreme Court’s decision in Coinbase strengthens the efficiency of the arbitral process. By requiring stays during interlocutory appeals, the Court has ensured that parties will not spend time and money litigating disputes if they are found to belong in arbitration.