Executive Summary: On June 23, 2023, in a 5-4 decision, the U.S. Supreme Court held that district courts (i.e. federal trial courts) must stay pre-trial and trial proceedings while an appeal of a decision denying a motion to compel arbitration is pending. See Coinbase, Inc. v. Bielski, 599 U.S. ___ (2023). Although this is a non-employment case, the Court’s decision is significant for employers because it may impact the effectiveness and enforceability of arbitration agreements under the Federal Arbitration Act.

Background

In Coinbase, a Coinbase user filed a putative class action complaint against the company claiming it failed to replace funds fraudulently taken from users’ accounts. Coinbase filed a motion to compel arbitration pursuant to an arbitration provision in the User Agreement that the users signed when becoming users of Coinbase. The district court denied the motion, and Coinbase filed an interlocutory appeal to the Ninth Circuit under 9 U.S.C. §16(a). Coinbase also requested the district court stay further proceedings pending a decision on the interlocutory appeal. The district court declined to issue a stay, and the Ninth Circuit also declined to stay further proceedings pending a decision on the appeal.

Supreme Court Decision

The Supreme Court agreed to review the case to resolve a split among federal appeals courts regarding whether to stay district court proceedings pending the resolution of an appeal of a denial of a motion to compel arbitration. In concluding that district court proceedings must be stayed, the Supreme Court reiterated that “[t]he Federal Arbitration Act governs arbitration agreements” and that while Section 16(a) does not indicate whether a district court must stay proceedings pending resolution of an interlocutory appeal, such answer must be yes. The Court relied heavily on its prior decision in Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982), to state that “[a]n appeal, including an interlocutory appeal, divests the district court of its control over those aspects of the case involved in the appeal,” and in reasoning that “[a]bsent an automatic stay of district court proceedings, Congress’s decision in §16(a) to afford a right to an interlocutory appeal would be largely nullified.”

The Supreme Court further noted that:

If the district court could move forward with pre-trial and trial proceedings while the appeal on arbitrability was ongoing, then many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along. Absent a stay, parties also could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration. That potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge Friendly called “blackmail settlements.” H. Friendly, Federal Jurisdiction: A General View 120 (1973).

Thus, the Supreme Court held, “the Griggs rule requires that a district court stay its proceedings while the interlocutory appeal on the question of arbitrability is ongoing.” Additionally, while not directly relevant to the issue on appeal, the Supreme Court took the opportunity to subtly nudge the Ninth Circuit, stating in the last paragraph of its decision “On remand, we anticipate that the Ninth Circuit here, as we anticipate in §16(a) appeals more generally, will proceed with appropriate expedition when considering Coinbase’s interlocutory appeal from the denial of the motion to compel arbitration.”