On June 23, 2023, the U.S. Supreme Court (the “Court”), in the case of Coinbase, Inc. v. Bielski, ruled that litigation in federal district court is automatically stayed when a party appeals the denial of a motion to compel arbitration. The Court reversed the U.S. Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) and resolved a circuit split with a ruling that has important tactical consideration for litigants, as explained below.
The Underlying Case
In this case, Coinbase moved to compel arbitration in a class action filed against it, and the U.S. District Court denied the motion. Coinbase then filed an interlocutory appeal to the Ninth Circuit and moved to stay district court proceedings to allow the arbitrability issue to be addressed on appeal. The district court refused to stay the proceedings, as did the Ninth Circuit. The Ninth Circuit, along with the Second and Fifth Circuits, held the minority position that the denial of a motion to compel arbitration does not automatically stay district court proceedings.
The Supreme Court Ruling
In a 5-4 decision, the Court reversed the Ninth Circuit and held that appealing the denial of a motion to compel arbitration automatically stays district court proceedings pending resolution of the appeal.
Justice Kavanaugh, writing for the majority, noted that while the Federal Arbitration Act grants the losing party a statutory right to an interlocutory appeal when a district court denies a motion to compel arbitration, it does not address whether district court proceedings must be stayed. 9 U. S. C. §16(a). However, the Court explained that the Federal Arbitration Act was enacted “against a clear background principle prescribed by this Court’s precedents” set forth in the Court’s Griggs v. Provident Consumer Discount Co. decision: an appeal “divests the district court of its control over those aspects of the case involved in the appeal.”
In this case, “Because the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is essentially ‘involved in the appeal.’” Therefore, district courts must stay proceedings while an interlocutory appeal on arbitrability is ongoing. This is a practice that, according to Justice Kavanaugh, “reflects common sense,” because proceeding with a case while issues of arbitrability are on appeal would reduce the benefits of arbitration, such as efficiency and cost-savings.
Implications
This decision is clearly a victory for defendants who appeal the denial of a motion to compel arbitration. But it also has important tactical considerations for plaintiffs who take a chance by filing in court when they know the dispute may be subject to arbitration. Even if the plaintiff persuades the relevant court that it has jurisdiction over the dispute, it must now wait out an appeal, which could materially impact the underlying goals of the litigation. This will impact a plaintiff’s cost/benefit analysis of the optimal forum for initiating a dispute in a case that involves multiple agreements with conflicting forum selection provisions.
For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.
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