While several recent Supreme Court decisions have garnered significant headlines, the Court’s late June ruling in Coinbase, Inc. v. Bielski, (Case No. 22-15), likely flew under the radar for the national media outlets. For practitioners who frequently deal with motions to compel arbitration, however, the justices’ 5-4 decision resolves a circuit split and follows the majority of courts by mandating an automatic stay when a party seeks an appeal on a right to arbitrate.
The underlying case involved a pair of California district courts that refused to compel arbitration involving the Coinbase User Agreement. Coinbase appealed both rulings, and in both cases, the district courts refused to stay the proceedings while the appeals were pending. After sifting through a civil procedure course final exam’s worth of scenarios, the parties appeared before the Supreme Court for oral argument on March 21. And as we have previously blogged (March 27, the justices’ questions were extensive and pointed, and they turned primarily on judicial precedent and the language of Section 16(a) of the Federal Arbitration Act (FAA).
On June 23, the Court agreed with Coinbase and held that the litigation should not have progressed to discovery while the company challenged rulings denying arbitration. As the Court noted, the Ninth Circuit was one of only three circuits that left the decision to issue a stay while an arbitration ruling was appealed to the district court judge. Six other circuits granted the stay automatically.
During oral argument in March, Justice Kavanaugh focused on the “coerced settlement” aspect of not automatically granting a stay when arbitration was denied. Three months later, in his relatively brief 10-page opinion for the majority, Justice Kavanaugh made it clear that “common practice reflects common sense” and “[b]ecause 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.’” As a result, such stays should be automatic going forward.
Conversely, Justice Kagan declared during the oral argument that with respect to the question of whether the FAA contemplated an automatic stay pending appeal, “16(a) does not say what you want it to say. It just doesn’t.” Unsurprisingly, she joined in the dissent, authored by Justice Jackson, who reiterated that trial judges should have more discretion to determine whether a stay was appropriate given the merits, potential discovery and overall circumstances of the litigation, and the fact that Congress did not expressly mandate such stays when it passed the FAA.
This decision does indeed, as Justice Kavanaugh stated, satisfy common sense. The parties, particularly in class actions, can incur considerable costs in litigating a case while an appeal is pending. A contrary decision would have destroyed much of the value of an arbitration agreement by forcing the parties to incur that expense and forgo the potential savings of an arbitral process.
The Bottom Line
It did not require a nuanced reading of the tea leaves at oral argument to predict the Court’s resolving this circuit split in favor of an automatic stay while a party seeks an interlocutory appeal on a right to arbitrate.
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