In Coinbase Win, U.S. Supreme Court Mandates Automatic Stay for Arbitration Appeals
In late June 2023, the U.S. Supreme Court handed down its decision in Coinbase, Inc. v. Bielski, No. 22-105, 599 U.S. __ (2023), holding that an automatic stay applies when a defendant appeals a district court’s denial of its motion to compel arbitration—a significant development in arbitration law and federal appellate procedure. In so holding, the Court applied the Griggs rule, which provides that an appeal, including an interlocutory (i.e., mid-litigation) appeal, “divests the district court of its control over those aspects of the case involved in the appeal.” Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982) (per curiam).
The Coinbase opinion reflects the Court’s commitment to upholding parties’ arbitration agreements. And while Coinbase arose in the context of the Federal Arbitration Act (FAA), prudent trial and appellate counsel should carefully consider whether an automatic stay pending appeal may be available whenever they encounter an appealable order.
Cryptocurrency phishing victim sues Coinbase, which seeks to arbitrate dispute
The plaintiff in Coinbase, Abraham Bielski, alleges an unknown third party electronically transferred cryptocurrency out of his Coinbase account. He filed a putative class-action complaint in federal court alleging Coinbase was to blame for his loss. Coinbase moved to compel arbitration based on the User Agreement to which Bielski had assented, but the district court denied the motion. Coinbase filed an interlocutory appeal to the Ninth Circuit, see 9 U.S.C. § 16(a), and requested a stay of the district court proceedings, which was denied based on Ninth Circuit precedent holding that stays pending arbitration appeals are discretionary. That appeal is fully briefed and the decision is pending as of the date we published this post.
The Supreme Court grants review to resolve a circuit split as to whether an arbitration appeal requires a pause of lower-court proceedings
While the Ninth Circuit appeal and district court action went forward, the U.S. Supreme Court granted Coinbase’s cert petition to resolve whether “a non-frivolous appeal of the denial of a motion to compel arbitration oust[s] a district court’s jurisdiction to proceed with litigation pending appeal, as the Third, Fourth, Seventh, Tenth, Eleventh and D.C. Circuits have held, or [whether] the district court retain[s] discretion to proceed with litigation while the appeal is pending, as the Second, Fifth, and Ninth Circuits have held.”
Siding with Coinbase, the Court holds that precedent and practicality require an automatic stay pending appeal in arbitration cases
In a 5-4 decision, with Justice Kavanaugh delivering the opinion joined by Chief Justice Roberts and Justices Alito, Gorsuch, and Barrett, the Supreme Court held the district court must automatically stay its proceedings during the interlocutory arbitration appeal.
The Court’s Coinbase decision reaffirmed the longstanding practice in a majority of Circuits of staying district court proceedings when an interlocutory appeal on arbitrability is pending. The Court relied on the Griggs principle, which, as discussed above, holds that an appeal divests the district court of control over aspects of the case involved in the appeal. See Griggs, 459 U.S. at 58.
The Court’s holding is also grounded in the text of the FAA and other federal statutes governing interlocutory appeals. Among other things, the Court pointed to Congress’ enactment of statutory “non-stay” provisions, whose existence suggests that a stay pending appeal is the default rule (i.e., the divestiture rule). If Congress meant to supersede the divestiture rule by passing a “non-stay” provision, it knew exactly how to do that. Where, as in the arbitration context, the very question on appeal is whether the case belongs in court at all, this background principle applies and the whole case is stayed pending appeal.
The Coinbase majority also took into account practical considerations, emphasizing the importance of maintaining the benefits of arbitration, such as efficiency, reduced expense, and less intrusive and burdensome discovery. Without an automatic stay, the Court reasoned, parties could be coerced into settling to avoid district court proceedings, effectively nullifying the statutory right to an immediate appeal.
The majority opinion concluded by urging the Courts of Appeals to “proceed with appropriate expedition” (slip op. at 10) when considering the merits of appeals about whether a case belongs in arbitration.
The dissent disagrees with the majority’s pro-arbitration ruling
Not all justices agreed with the majority opinion. Justice Jackson penned a dissent, which Justices Sotomayor and Kagan joined and which Justice Thomas joined in part. Among other points of disagreement, the dissent was skeptical of the procedural rule that the majority announced, which, the dissent pointed out, might give leverage to pro-arbitration litigants while not similarly favoring the party opposed to arbitration.
However, that asymmetry did not originate with the Coinbase majority decision. Congress, in crafting the FAA, allowed litigants to immediately appeal a ruling rejecting arbitration, while expressly prohibiting litigants from appealing a ruling compelling arbitration. See 9 U.S.C. § 16. As courts have long recognized, favorable treatment of pro-arbitration litigants makes sense because, without such a rule, they “‘may be compelled to litigate the merits of their dispute in a forum they agreed to avoid.’” Jackson v. Amazon.com, Inc., 65 F.4th 1093, 1097 (9th Cir. 2023) (quoting Abernathy v. S. Cal. Edison, 885 F.2d 525, 529 n.15 (9th Cir. 1989)).
Thus, while the Coinbase majority opinion arguably gives a procedural advantage to pro-arbitration litigants, its ruling is a natural consequence of the FAA’s legal framework that seeks to hold parties to their contractual agreements to arbitrate, and regards arbitration as a relatively inexpensive, efficient, and speedy means of resolving legal disputes.
The dissent also worries that stays pending appeal will interfere with federal litigation, although such stays may be less common than the dissent suggests
Justice Jackson’s dissent also observed that the majority opinion could have far-reaching implications for “a wide array of appeals” beyond the arbitration context. (Dissent at 14.) But the dissent’s concern about a deluge of automatic stays appears overstated.
Consider: If the district court’s order results in a final judgment of dismissal and the plaintiff appeals, there will be no ongoing trial-court proceedings to stay while the appeal goes forward, so the stay issue is moot. And if instead, the order does not result in a final judgment of dismissal, it will rarely be appealable due to the final judgment rule. See Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 (1949) (a litigant may not immediately appeal orders that “are but steps towards final judgment in which they will merge” (citing 28 U.S.C. § 1291)); see also, e.g., Van Cauwenberghe v. Biard, 486 U.S. 517, 527 (1988) (holding orders denying motions to dismiss on the ground of forum non conveniens are not immediately appealable); Atl. Marine Const. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49 (2013) (order denying motion to dismiss for improper venue based on forum-selection clause reviewable by extraordinary writ, not appeal).
Some of the orders the Coinbase dissent identified, like orders dismissing or staying an action based on federal abstention, are immediately appealable under the collateral order doctrine, but they are rare. See, e.g., Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 712 (1996) (Burford abstention); Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 11 n.11 (1983) (Colorado River abstention); but cf. Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 277–78 (1988) (holding an order denying a motion to stay or dismiss an action based on Colorado River abstention is not immediately appealable as of right). Federal abstention appeals, like qualified or sovereign immunity appeals, are relatively uncommon and involve unique considerations. They do not pose a risk of flooding the trial courts with automatic stays of litigation.
Because most of the orders the Coinbase dissent identified would not be immediately appealable as of right, the defendant would instead have to persuade the district court and Court of Appeals to grant the right to file an interlocutory appeal. See 28 U.S.C. § 1292(b). But by statute, trial court proceedings (other than those aspects of the case involved in the certified interlocutory appeal) would not be stayed unless the district court or Court of Appeals orders a stay. Id.; cf. Coinbase, 599 U.S. at __ & n.4, slip op. at 5 & n.4 (noting with approval that lower courts have held the Griggs principle applies to those aspects of the case involved in a certified interlocutory appeal under section 1292(b)). So in this scenario, the stay issue would be controlled by section 1292(b) itself, not by the background principles articulated by Coinbase or Griggs.
Thus, the dissent’s concerns regarding a coming flood of litigation abuses stemming from the automatic-stay procedure appears overstated in practice. It is also contradicted by the experience of jurisdictions like California, which has a general rule that “the perfecting of an appeal stays proceedings in the trial court upon the judgment or order appealed from or upon the matters embraced therein or affected thereby, including enforcement of the judgment or order[,]” Cal. Civ. Proc. Code § 916(a), except for certain matters, like enforcement of money judgments. (Update: California has since enacted SB 365, which, as of January 1, 2024, exempts arbitration appeals from the automatic-stay rule.) The automatic stay pending appeal is regarded by practitioners as the norm, not an abusive litigation tactic. And in the rare case of a truly frivolous, dilatory appeal, appellees and respondents have many tools at their disposal, including motions for dismissal or sanctions, to discourage and remedy abusive litigation tactics.
Conclusion
The Coinbase opinion brings orderliness and predictability to federal appellate practice, at least in the domain of arbitration appeals. Time will tell whether courts will apply Coinbase’s automatic-stay rule in contexts beyond the FAA. Trial and appellate counsel should be aware of their options when they are faced with a potentially appealable order that may be accompanied by an automatic stay.
Disclaimer
The author and The Norton Law Firm are serving as counsel for Coinbase in the Bielski district court litigation. The views expressed in this blog post are solely those of the author and do not necessarily reflect the views of our clients.