When a federal district court denies a motion to compel arbitration, the losing party has a statutory right to an interlocutory appeal pursuant to 9 U. S. C. §16(a). In the case of Coinbase, Inc. v. Bielski, 22-105 (June 23, 2023), the Supreme Court of the United States considered the sole question of whether the district court must stay its proceedings while the interlocutory appeal is ongoing.
The court answered in the affirmative and ruled that the district court must stay its proceedings.
The Case
Coinbase is an online platform where users can buy and sell cryptocurrencies as well as government-issued currencies. Users who create an account electronically agree to a User Agreement, which contains an arbitration clause and states that the parties agree to arbitrate any disputes arising under the agreement.
Abraham Bielski brought a claim in the U.S. District Court for the Northern District of California on behalf of Coinbase users who alleged that Coinbase did not return funds that were taken fraudulently from user accounts. Coinbase filed a motion to compel arbitration, which the district court denied. Coinbase then filed an interlocutory appeal to the U.S. Court of Appeals for the Ninth Circuit, exercising its statutory right to an interlocutory appeal after the denial of its motion to compel arbitration by the district court. Coinbase also filed a motion to stay the proceedings in the district court pending resolution of the appeal.
The district court denied the motion to stay the proceedings according to Ninth Circuit precedent, which does not automatically call for a stay while an interlocutory appeal is pending. [See Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (1990]. By contrast, the majority of other courts of appeal have agreed to stay proceedings during interlocutory appeals on the question of arbitrability. [See Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (CA7 1997)].
Due to this discrepancy on the court of appeals level, SCOTUS granted certiorari on this question.
The Federal Arbitration Act
The FAA provides that it is the governing source for arbitration agreements. An amendment added in 1988 that can be found in 9 U.S.C.§16(a) adds that when a district court denies a motion to compel arbitration, the losing party has a statutory right to an interlocutory appeal. This section carves out a statutory exception to the rule that a party may not appeal before a final judgment. [See Mohawk Industries, Inc. v. Carpenter, 558 U.S. 100, 108-109 (2009)]. Notably, this rule only applies when district courts deny a motion to compel arbitration; not when they grant it.
Although the statute does not specifically state that district court proceedings must be stayed during an interlocutory appeal regarding a denial of a motion to compel arbitration, the Griggs principle provides clear direction on this topic. In Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982), the court held, “An appeal, including an interlocutory appeal divests the district court over those aspects of the case involved in the appeal.”
The Supreme Court found that the Griggs principle indisputably answers the question presented in this case. Since the issue involves the right of a party to arbitrate the dispute, the entirety of the case is necessarily involved in the appeal. The Supreme Court cites Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (CA7 1997)—“When a party appeals the denial of a motion to compel arbitration, whether the litigation may go forward in the district court is precisely what the court of appeals must decide,” and Apostol v. Gallion, 870 F.2d 1335, 1338 (CA7 1989)—"It makes no sense for the trial to go forward while the court of appeals cogitates on whether there should be one.” Thus, the Supreme Court concluded that district courts must stay their proceedings until the interlocutory appeal regarding arbitrability is resolved.
Common Sense
The court came to its conclusion easily based on logic it referred to as “common sense.” For example, if a district court did not stay its proceedings, it would essentially make the amendment to the FAA regarding a right to an interlocutory appeal completely ineffective. In addition, moving forward with the case in district court would undo any potential benefits of arbitration, such as efficiency, reduced costs, and less oppressive discovery, etc. There would be no way to retrieve these benefits of arbitration should the party’s interlocutory appeal be successful and arbitration was ordered to take place after all.
Further, allowing a case to continue in the district court that may ultimately be resolved via arbitration is a clear waste of already scarce judicial resources and time. Finally, parties forced into district court proceedings before the appeal is concluded may feel pressured to settle their case, especially in class action or representative action lawsuits. “A continuation of proceedings in the district court largely defeats the point of the appeal.” (See Bradford-Scott, 128 F.3d at 505). Justice Kavanaugh, illustrated point, says, "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."
The district court in this case was required to stay the proceedings according to the language of the FAA section 16(A), as well as the longstanding Griggs principle. Therefore, the Supreme Court reversed the judgment and remanded the case for further review.