Intellectual Property Litigation, Protection and Prosecution

Reverses 9th Circuit on Stay Issue: Court Makes Mandatory a Stay of District Court Actions on Interlocutory Appeals from Denial of Motion to Compel Arbitration

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The United States Supreme Court, in a somewhat controversial ruling, has resolved a circuit split by ruling that interlocutory appeals from a federal district court’s denial of a motion to compel arbitration must automatically stay the underlying District Court case. On June 23, 2023, the Supremes in Coinbase, Inc. v. Bielski, No. 22 – 105 (599 U.S. ____ 2023), held that the district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. While the rationale in this case seems almost like a no-brainer, the district courts have been somewhat torn on the issue in recent years. More and more business agreements have alternate dispute resolution procedures and there has been a conundrum over how to enforce an arbitration provision in a contract if your opponent brings a lawsuit in federal court. The general practice is to file a motion to compel arbitration, but if the district court denies the motion, it seems pointless and unnecessary to proceed with the litigation while the movant takes an appeal from the denial of the motion to compel arbitration. However, and perhaps not surprisingly, the Ninth Circuit in California had helped to create the circuit split in the underlying action herein, where it upheld the district court ruling denying a motion to stay the proceedings while Coinbase appealed the District Court’s denial of a motion to compel arbitration. This is an important ruling for businesses which seek to avoid costly litigation through mandatory contract provisions compelling ADR. There was a strong dissent by four members of the court which may produce more litigation on this issue.

In Coinbase, Justice Kavanaugh delivered the opinion of the Court and establish the issue on appeal by writing: “The sole question here is whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing?” He answered the appellate question quite simply by writing “yes”.

Coinbase operates an online platform on which users can buy and sell crypto currencies and government-issued currencies. When a new account is created by a user, the Users Agreement contains an arbitration provision which directs that all disputes arising under the agreement be resolved through binding arbitration. The putative class action was filed against Coinbase in the United States District Court for the Northern District of California with the lead plaintiff being Abraham Bielski. The class plaintiffs allege that Coinbase failed to replace funds fraudulently taken from their accounts. Coinbase filed a motion to compel arbitration which was denied by the district court. An interlocutory appeal followed to the Ninth Circuit under 9 U.S.C. Section 16 (a). This Section authorizes an interlocutory appeal from the denial of a motion to compel arbitration and Coinbase filed, contemporaneously, a motion to stay the district court proceedings pending the appeal. The district court denied the motion for stay and this denial was upheld by the Ninth Circuit. It had been 9^th circuit precedent that an appeal from the denial of a motion to compel arbitration did not automatically stay district court proceedings.

The Supreme Court recognized that most Courts of Appeals who have addressed this question have held that a district court must stay its proceedings while the interlocutory appeal on the question of arbitrability is ongoing. To resolve the circuit split, the Supremes granted certiorari and the Court’s decision was issued on June 23, 2023 (with Kavanaugh, Roberts, Alito, Gorsuch and Barrett in the majority and Jackson, Sotomayor, Kagan and Thomas dissenting in whole or in part). The court noted that the Federal Arbitration Act governs arbitration agreements and that an amendment signed by Pres. Reagan in 1988 (Section 16 A as cited above) allows a party to file an interlocutory appeal from a district court’s denial of a party’s motion to compel arbitration. Hence, the Supreme Court correctly noted that the only question on appeal is whether or not a stay of the district court action should be entered while the interlocutory appeal is ongoing.

In the part that seemed, at first blush, like a no-brainer, the court writes that Section 16(a) was passed by Congress “against the clear background principle prescribed by this Court’s precedents: an appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal.” Griggs v. Provident consumer discount Co., 450 9U. S. 56 (1982). The court commented that the Griggs principle reflects a long-standing tenant of American procedure. Hence, the Supreme Court determined herein that the “Griggs principle resolves this case”. Justice Kavanaugh explained that 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.” “Here, as elsewhere, it makes no sense for the trial to go forward while the Court of Appeals cogitates on whether there should be one.” Justice Kavanaugh concludes that “in short, Griggs dictates that the district court must stay its proceedings while the interlocutory appeal on arbitrability is ongoing… Absent an automatic stay of district court proceedings, Congress’s decision in Section 16(a) to afford a right to an interlocutory appeal would be largely nullified.” In a parting comment to the Ninth Circuit, Justice Kavanaugh wrote that “on remand, we anticipate that the 9^th circuit here, as we anticipate in Section 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”. Reversed and remanded (and get a move-on with the appeal from denial of the motion to compel arbitration!).

Note on Dissent: Justice Jackson, writing for the dissent, made it clear from the outset that the dissent was of strong opinion. She wrote that “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. Those defendants will now receive the stay even when, according to the usual equitable analysis, there is no good reason for one. And in reaching this result, the Court concludes for the first time that an interlocutory appeal about one matter (arbitrability) bars the district court from proceeding on another (the merits). That logic has such significant implications for federal litigation that the majority itself shies away from the Pandora’s box it may have opened.” See the Opinion Here in Coinbase v. Bielski.