Last week the U.S. Supreme Court issued a 5-4 decision in Coinbase, Inc. v. Bielski, holding that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is pending. The decision resolves a circuit split on the question of whether such a stay is mandatory or discretionary. Justice Kavanaugh authored the majority opinion, joined by Chief Justice Roberts and Justices Alito, Gorsuch, and Barrett. Justice Jackson authored a dissenting opinion in which Justices Sotomayor, Kagan, and Thomas (in part) joined.

The case arose from alleged cryptocurrency fraud. The plaintiffs filed a putative class action in the Northern District of California against Coinbase, a cryptocurrency exchange, for its alleged failure to replace funds they claimed had been stolen from their accounts. Coinbase’s User Agreement with the plaintiffs contained an arbitration clause. Coinbase responded to the plaintiffs’ lawsuit with a motion to compel arbitration, which district court Judge William H. Alsup denied. Coinbase then filed an interlocutory appeal to the Ninth Circuit and moved the district court to stay the proceedings pending resolution of that appeal. Judge Alsup denied the initial stay motion. Coinbase next sought a stay pending appeal in the Ninth Circuit, which the Ninth Circuit denied.

In reaching its decision to deny Coinbase’s stay motion the Ninth Circuit followed its own precedent, but a circuit split on this issue has been percolating for decades. In 1988, Congress passed an amendment to the Federal Arbitration Act that granted the right of interlocutory appeal to the party on the losing end of an order denying a motion to compel arbitration. Courts have divided over the related issue of whether a stay of the underlying litigation during the interlocutory appeal should be automatic. A majority of the circuits hold that stays should be automatically granted, on the theory that allowing litigation to proceed while an appeal is pending eviscerates the benefits sought to be achieved through arbitration, such as less costly proceedings. A minority of circuits, however, including the Second, Fifth, and Ninth Circuits, have concluded that the decision whether to stay is discretionary. The Supreme Court granted Coinbase’s petition for certiorari to resolve this split.

In reversing the Ninth Circuit and resolving the circuit split, the slim Supreme Court majority relied primarily on Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982). Griggs held that any appeal — including an interlocutory appeal — divests the district court of jurisdiction over those aspects of the case “involved in the appeal.” According to the majority, this “Griggs principle” requires the district court to stay its proceedings while an interlocutory appeal on arbitrability is ongoing.

As the Court explained, that 1988 amendment to the Federal Arbitration Act, codified at 9 U.S.C. §16(a), permits interlocutory appeal by right from a district court order denying a party’s motion to compel arbitration — creating a rare statutory exception to the usual procedural rule that parties may not appeal before final judgment. While §16(a) does not address whether the district court proceedings must be stayed while the interlocutory appeal proceeds, the majority concluded that Griggs requires that result. The Court explained that, in appeals from orders denying motions to compel arbitration, the question on appeal is whether the case belongs in arbitration or instead in the district court. Since “the entire case is essentially ‘involved in the appeal,'” the Court reasoned, the district court has no choice but to stay its proceedings while the interlocutory appeal on arbitrability is ongoing.

In the majority opinion, Justice Kavanaugh focused on the waste of resources that occurs by allowing litigation and an appeal to proceed simultaneously, stating: “From the Judiciary’s institutional perspective, … allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources — which could be devoted to other pressing criminal or civil matters — on a dispute that will ultimately head to arbitration in any event.” Quoting a Seventh Circuit opinion by the renowned Judge Easterbrook, Justice Kavanaugh observed that this “scenario represents the ‘worst possible outcome’ for parties and the courts: litigating a dispute in the district court only for the court of appeals to ‘reverse and order the dispute arbitrated.’ The Griggs rule avoids that detrimental result.”

Justice Jackson’s dissenting opinion expressed concern about the majority’s “new rule,” which in her view favors one class of litigants. She wrote: “This mandatory-general-stay rule for interlocutory arbitrability appeals comes out of nowhere. No statute imposes it. Nor does any decision of this Court. Yet today’s majority invents a new stay rule perpetually favoring one class of litigants—defendants seeking arbitration.” Justice Jackson also worried that the majority’s logic would apply to a wide swath of appeals. “Never before had this Court mandated a general stay simply because an interlocutory appeal poses the question ‘whether the litigation may go forward in the district court.’ … And a wide array of appeals seemingly fits that bill. Indeed, any appeal over the proper forum for a dispute would arguably raise the same question.” While Justice Jackson opined that the majority’s logic would seem to apply to appeals over forum-selection agreements, venue, personal jurisdiction, forum non conveniens, federal jurisdiction, and abstention, she acknowledged the majority expressly narrowed its holding to apply only to arbitration provisions.

Our Take:

This decision brings important nationwide uniformity and predictability to the often hotly contested arena of arbitrability. Of particular importance to the defense bar is the fact that it eliminates a temptation for would-be plaintiffs to forum shop in the Second, Fifth, or Ninth Circuits in hopes of evading an arbitration clause — or at least being able to pursue their lawsuits simultaneously while arbitrability is considered. The next big questions are posed by Justice Jackson’s dissent. Will any and every challenge to the forum now spawn an interlocutory appeal with an accompanying stay of proceedings? And will Justice Jackson’s prediction that the newly announced “mandatory-general-stay” rule will “upend federal litigation as we know it” come to pass? There likely will be developments in areas where Congress has granted interlocutory appeals, such as orders granting preliminary injunctions and discretionary appeals of class certification decisions pursuant to Federal Rule of Civil Procedure 23(f). Troutman Pepper’s Consumer Financial Services Law Monitor will be keeping a close eye on developments.