Resolving a Circuit Split: Heavyweights Arbitration and Litigation Have Another Round on Appeal
I. Introduction
Under § 16(a) of the Federal Arbitration Act, when a district court denies a motion to compel arbitration, the unsuccessful movant may file an immediate interlocutory appeal. However, until the U.S. Supreme Court’s decision on June 23, 2023 in Coinbase, Inc. v. Bielski, No. 22–105, 599 U.S. __ (2023), the U.S. Courts of Appeal were divided over whether filing an appeal automatically stays further proceedings in the district court pending appeal or whether a stay would be discretionary. The Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits have held that an appeal of a denial of a motion to compel arbitration automatically divests a district court of jurisdiction to proceed with the case pending the appeal. The minority rule, followed by the Second, Fifth, and Ninth Circuits, is that a stay is discretionary. In Coinbase v. Bielski, the Supreme Court resolved this circuit split,1 which may impact the selection of New York as a forum for international arbitration.
In a majority opinion written by Justice Kavanaugh, the Supreme Court held that an automatic stay of proceedings in the district court was mandatory. Justice Jackson in the dissent, joined by Justices Sotomayor, Kagan, and Thomas (in part), countered that the statute does not provide such relief, despite the fact that other statutes do, also opining that the case authority relied upon by the majority was insufficient to support their conclusion. The dissent suggests that the majority rule eliminating the trial court’s discretion impairs the ability of the district court to grant any injunction or other preliminary relief. The dissent notes that the mandatory-general-stay rule—without a clear basis articulated in the statute—perpetually favors one class of litigant-defendants seeking arbitration who can now press pause and leave plaintiffs to suffer losses of potential evidence while “bleed[ing] dry their patience and funding in the meantime.” But the opposite rule could impose enormous discovery and trial costs when a ruling in the interlocutory appeal might render that expense unnecessary. Such waste can harm putative class actions where companies incur significant expenses associated with class discovery, class certification briefing, and experts as they appeal the arbitration denial.
II. The Circuit Split
The circuit split dates back to the early 1990s when the Ninth Circuit became the first appellate court to address this issue in Britton v. Co-Op Banking Group.2 The Ninth Circuit held that the district court had discretion to either stay or proceed with the case while the interlocutory appeal of the denial of a motion to compel arbitration was pending, emphasizing that the plain language of the FAA did not require a stay. In 1998, the Seventh Circuit, in Bradford-Scott Data Corp v. Physician Computer Network, adopted the opposite position, holding that the FAA mandated a stay of district court proceedings.3
Since then, the Second and Fifth Circuits joined the Ninth Circuit in the minority position, holding that the FAA does not mandate a stay but instead applies the standard discretionary principles weighing: (1) the likelihood of success on the merits, (2) the prospect of irreparable injury absent a stay, (3) the balance of the equities, and (4) the public interest.4
III. Coinbase v. Bielski
Coinbase v. Bielski involves two consolidated proposed class actions—filed by lead plaintiffs Abraham Bielski and David Suski—against cryptocurrency exchange platform Coinbase in federal district courts in California. The Bielski lawsuit alleges that Coinbase failed to appropriately respond to plaintiffs’ request for assistance after a scammer hacked into and stole money from their Coinbase accounts.5 The unrelated Suski lawsuit alleges that Coinbase duped the plaintiffs into paying for entries in the company’s “Dogecoin sweepstakes.”6
In both cases, Coinbase moved to compel arbitration, relying on its user agreement that required plaintiffs arbitrate their claims individually. Both motions to compel were denied. Coinbase appealed to the Ninth Circuit pursuant to § 16(a) of the FAA, which expressly allows interlocutory appeals from orders denying motions to compel arbitration. The company also sought to stay the proceedings below while the appeals were pending. When the Ninth Circuit refused the stay, Coinbase sought Supreme Court review on the stay issue; the issue of arbitrability was not before the Supreme Court.
Coinbase argued that by expressly authorizing these one-sided interlocutory appeals, Congress recognized that the right to arbitrate is so crucial that the aggrieved party should be able to vindicate this right immediately with an interlocutory appeal. Thus, it argued that the statute itself created a pro-arbitration rule suggesting mandatory stay.
The majority opinion held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing, thereby reversing and remanding the case. Recognizing that § 16(a) does not say whether the district court proceedings must be stayed, the Court placed great reliance on a clear background principle prescribed by precedent including from Griggs v. Provident Consumer Discount Co, 459 U.S. 56, 58 (1982). The Court noted 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. Justice Kavanaugh emphasized that adopting this rule reflects common sense and is supported by legal treatises such as Moore’s Federal Practice Treatise and Wright & Miller’s Federal Practice and Procedure. Additionally, the majority noted that from a judiciary-institutional perspective, allowing a case to proceed simultaneously in both the district court and courts of appeal 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. In contrast, the dissent recognized that by adopting such a position, the majority embraced a position that favors defendants seeking to enforce arbitration, providing a level of certainty to companies that expenses associated with extensive discovery in the district court can be placed on hold while the appellate court considers arbitrability.
IV. Implications for International Arbitration and Increasing Use of New York as a Forum
In the context of international arbitration, certainty over whether users will have access to an arbitration forum is critical. The implications for international arbitration are significant because New York is one of the leading centers for international arbitration.7 Simply resolving the circuit split restores some certainty, which aids arbitration.8 Justice Kavanagh articulated Coinbase’s concern on this point at oral argument. See Transcript of Oral Argument at 66-67 (“[I]f the district court discovery goes forward . . . in a class action context, that is going to coerce massive settlements, and they don’t want to be coerced into massive settlements without having the opportunity to take advantage of the right that Congress has given them to have an appeals court decide whether arbitration is the appropriate forum.” The confidentiality assured by arbitration cannot be adequately protected once parties bring their dispute into a public forum. As Coinbase articulated at oral argument, “you can’t put the toothpaste back in the tube” once class discovery spills out into the public domain through litigation.9
The Supreme Court’s decision is also significant because statistics show that reversals of district court decisions on whether to compel arbitration are more frequent than reversals in other appeals.10 Comparing the reversal rates in the federal courts of appeals between 2012 and 2022, Amici point out that the reversal rate for appeals challenging the denial of a motion to compel arbitration is roughly four times higher than the rate of reversal for private civil appeals (reversal rate of 43.6% for denials of motions to compel arbitration versus 12.3% for all private civil appeals). According to Amici, this reversal rate reflects the district court’s continuing hostility to arbitration—a concern that Congress was aware of when it enacted § 16(a).11
On balance, the majority opinion in Coinbase supports the continued vitality of international arbitration in New York and the U.S. in general.
Kayla Joyce is an intern at the New York International Arbitration Center. She graduated from Fordham Law School in May 2023.
Endnotes
1 Coinbase Inc. v. Bielski, No. 22–105, 599 U.S. _ (2023).
2 916 F.2d 1405 (9th Cir. 1990).
3 128 F.3d 504 (7th Cir. 1998).
4 Nken v. Holder, 556 U.S. 418, 434 (2009).
5 See Brief of Respondent Abraham Bielski at 5 (filed Feb. 1, 2023) [hereinafter Bielski Brief].
6 See Brief of Respondents David Suski et al. at 9 (filed Feb. 21, 2023).
