By Melanie M. Ghaw, Esq.
A recent decision by the United States Supreme Court resolved a long-standing circuit split on the issue of whether district courts have the discretion to stay proceedings when a party appeals the denial of a motion to compel arbitration under the Federal Arbitration Act (“FAA”). In a 5-4 decision issued in Coinbase, Inc. v. Bielski, 599 U.S. (June 23, 2023),the Court held a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing.
Prior to this decision, the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits have held that district courts must stay pretrial and trial proceedings pending a non-frivolous appeal of the denial of a motion to compel arbitration, while the Second, Fifth, and Ninth Circuits have held that district courts have the discretion to grant a stay or proceed with litigation. The Supreme Court’s decision resolves the circuit split in favor of an immediate stay.
In the underlying case, Respondent Abraham Bielski filed a putative class action against Petitioner Coinbase, an online cryptocurrency platform, alleging that Coinbase failed to replace funds that were fraudulently taken from users’ accounts. Coinbase moved to compel arbitration pursuant to the arbitration provisions contained in its user agreement. Following the district court’s denial of the motion, Coinbase filed an interlocutory appeal with the Ninth Circuit under the FAA, which authorizes such an appeal from the denial of a motion to compel arbitration and, also, moved the district court to stay proceedings pending resolution of the interlocutory appeal. The Ninth Circuit declined to stay the proceedings and the district court denied Coinbase’s motion to stay.
The Supreme Court reversed the Ninth Circuit’s judgment and determined that a district court must stay proceedings during the pendency of an interlocutory appeal of a denial of motion to compel arbitration. The Supreme Court relied on Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982), stating that an appeal “divests the district court of its control over those aspects of the case involved in the appeal,” and further noted that when a question on appeal involves a determination of whether the case belongs in arbitration or district court, “the entire case is essentially ‘involved in the appeal’” and, accordingly, “Griggs dictates that the district court stay its proceedings while the interlocutory appeal on arbitrability is ongoing.”
The Supreme Court explained that if the district court could continue with proceedings pending an appeal on arbitrability, several benefits attributed to arbitration would be lost, including “efficiency, less expense, less intrusive discovery, and the like[,]” in addition to the possibility of a forced settlement to avoid district court proceedings that they contracted to avoid through arbitration. The Supreme Court further noted that, although the FAA is silent on whether district court proceedings must be stayed pending resolution of an interlocutory appeal, the Griggs rule properly reflects Congressional intent even in the absence of an explicit stay requirement. Notably, the Supreme Court rejected the argument that the merits of the underlying dispute are severable from questions of arbitrability and determined that a district court’s authority to consider a case is involved in the appeal when the threshold question before the appellate court concerns arbitrability.
The impact of the Supreme Court’s ruling results in a uniform automatic stay of proceedings when a party appeals an order denying a motion to compel arbitration under the FAA.
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