B. Congressional Amendment of the FAA Produces a Circuit Split
Section 3 of the FAA makes clear that when a motion to compel arbitration is granted, the court should “stay the trial of the action until such arbitration has been had in accordance with the terms of the [arbitral] agreement. . . .” The FAA does not permit an interlocutory appeal of an order compelling arbitration. Under FAA § 3, the stay of the litigation remains in place until after the arbitration is concluded. Then FAA § 10 would permit a court to review the arbitral award on limited grounds.
From 1925 until 1988, the FAA did not allow a party to take an interlocutory appeal from an order denying a motion to compel arbitration. In 1988, however, Congress amended the FAA, adding § 16(a), which permits interlocutory appeals from orders denying arbitration. Section 16(a) thus reflects one of the relatively rare occasions when Congress has made a statutory exception to the usual rule that parties may not appeal before a final judgment. As such, § 16(a) reflects Congress’s favored treatment of arbitration.
Congress was silent in § 16(a) whether a court should grant a stay of litigation if the party seeking arbitration filed an interlocutory appeal from a district court’s order denying arbitration. Congress plainly understood that it had the authority to grant or prohibit stays pending such interlocutory appeals. Contemporaneously with enacting FAA § 16(a), Congress authorized an interlocutory appeal in another context, but explicitly barred courts from issuing a stay of the underlying administrative proceeding pending such an appeal. In the context of § 16(a), however, Congress remained silent on the issue of whether the underlying litigation should continue or be stayed.
Compounding the problem with statutory analysis created by Congress’s silence, the Supreme Court in 1982 decided Griggs v. Provident Consumer Discount Co. That casehad absolutely nothing to do with arbitration. Rather, the Supreme Court in Griggs was asked to resolve the generic civil procedure question of how district courts and courts of appeal should handle a judgment after a party files a notice of appeal. The Supreme Court held in Griggs that a notice of appeal “divests the district court of its control over those aspects of the case involved in the appeal.” Subsequently, the Supreme Court clarified that “[o]nly Congress may determine a lower court’s subject matter jurisdiction.” Griggs merely articulates a “judge-made rule” that is “designed to promote judicial economy and avoid the confusion and inefficiency that might flow from putting the same issue before two courts at the same time.” Under the Griggs rule, districts courts should not continue to address any aspects of the case that are under consideration by a court of appeals.
The Ninth Circuit construed FAA § 16(a) in Britton v. Co-op Banking Group, holding that Griggs did not divest the district court of jurisdiction when a party filed an interlocutory appeal after a decision denying a motion to compel arbitration. The Ninth Circuit construed both Griggs and Moore’s Federal Practice to allow the district court to continue to exercise jurisdiction over all “matters not involved in the appeal,” drawing a distinction between the issue of arbitrability and the merits of the case.
A circuit split developed seven years later when the Seventh Circuit held that a district court should automatically stay a case under the Griggs doctrine if a party appealed from an order denying a motion to compel arbitration. Judge Easterbrook flatly rejected the Ninth Circuit’s rationale that a distinction could be drawn between the “merits” of the case and the issue of whether those merits should be arbitrated or litigated. He argued that, under Griggs, “‘[w]hether the litigation may go forward in the district court is precisely what the court of appeals must decide.”
The Third, Fourth, Tenth, Eleventh, and District of Columbia Circuits have also relied on Griggs to adopt a procedural policy of halting district court proceedings indefinitely when a party appeals an order declining to compel arbitration. The Second and Fifth Circuits have joined the Ninth Circuit in declining to grant automatic stays based on Griggs. Instead, they require a party to file an application to obtain a discretionary stay of the case pending the outcome of the interlocutory appeal. Granting such stays rests in the sound discretion of the district court and is subject to a showing of irreparable harm and a probability of success on the merits. The monetary costs of lawyer fees, discovery, etc., are generally not sufficient to show the harm necessary to obtain discretionary stays. Hence, the availability of a Griggs automatic stay is often outcome determinative as to whether litigation following an order denying a motion to compel arbitration is stayed pending appeal.
C. Supreme Court Grants Certiorari to Resolve the Circuit Split
To resolve the circuit split over § 16(a), the Supreme Court granted a joint petition for certiorari to hear two class action cases involving Coinbase, Inc. The Coinbase cases involve two distinctly different matters that substantially differ on the gateway question of arbitrability. This report will discuss only the Court’s decision in Coinbase, Inc. v. Bielski in light of the fact that the Court dismissed the second case on the grounds that certiorari was improvidently granted. The facts related to the merits of Bielski’s claims are wholly irrelevant to the Supreme Court’s decision, as the only issue addressed was whether a stay pending appeal was required by Griggs following Coinbase’s appeal of the denial of its motion to compel arbitration.
In the Supreme Court’s 5–4 opinion, Justice Kavanaugh emphasized the very narrow issue before the Court, stating: “The sole question here is whether the district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing.” Justice Kavanaugh candidly acknowledged that the text of FAA § 16(a) did not resolve the issue. But because Congress enacted § 16(a) “against a clear background principle prescribed by this Court’s precedents,” the “Griggs principle resolves this case.” The Court resolved the circuit split by ruling Griggs dictates that an interlocutory appeal “divests the district court of its control over those aspects of the case involved in the appeal.”
In Coinbase, the Court held that, “[b]ecause 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.” Quoting Judge Esterbrook’s holding in Bradford-Scott, the Court asserted that “when a party appeals the denial of a motion to compel arbitration, whether ‘the litigation may go forward in the district court is precisely what the court of appeals must decide.’” The Court asserted that it “makes no sense for the trial to go forward while the court of appeals cogitates on whether there should be one.”
In support of its position, the Court stated it was following the majority rule, noting that “[m]ost courts of appeals to address the question in the § 16(a) context have reached that same conclusion.” The Court further cited Moore’s treatise on federal civil procedure stating that “a stay in these circumstances” is “the sounder approach” and “is consistent with the general [Griggs] principle that a district court should not exercise jurisdiction over those aspects of the case that are involved in the appeal.” The Court also cited Wright and Miller as endorsing automatic stays because “[c]ontinued trial-court proceedings pending appeal could lead to an entirely wasted trial if arbitration is ordered on appeal.”
Thus the Court primarily relied on “common practice in § 16(a) cases” to support its decision, asserting that “common practice reflects common sense.” The Court explained that, if pre-trial and trial proceedings were allowed to proceed 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,” largely defeating Congress’s purpose for granting an interlocutory appeal in the first instance. The worst possible outcome for the parties and the courts would be reached if an appeal resulted in ordering arbitration, as the parties would have needlessly been placed to great expense and the court would have wasted scarce judicial resources on a dispute that ultimately heads to arbitration in any event.
The dissenting opinion by Justice Jackson (joined in full by Justices Sotomayor, and Kagan and in part by Justice Thomas) is one-third longer than the Court’s decision. Justice Jackson starts the dissent by asserting: “This mandatory-general-stay rule for interlocutory arbitrability appeals comes out of nowhere.” The dissent primarily objects that the majority “invents a new stay rule perpetually favoring one class of litigants—defendants seeking arbitration.” The dissent warns that the logic of the Court’s decision “has such significant implications for federal litigation that the majority itself shies away from the Pandora’s box it may have opened.” The dissent asserts the majority opinion “transmogrifies Griggs into a sweeping stay of ‘pre-trial and trial proceedings’ on not just arbitrability, but also the merits.” The dissent asserts the majority has “supercharged” Griggs and “ventures down an uncharted path—and that way lies madness.”
As an example of the potential madness that could escape Pandora’s box, Justice Jackson points to the Court’s decision in Viking River Crusises, Inc. v. Moriana,where the Court stated that “an arbitration agreement is ‘a specialized kind of forum-selection clause.” The minority suggests: “If arbitration appeals require stays of all pre-trial and trial proceedings, why not all appeals about forum-selection agreements?” The minority points out that similar arguments could be made for mandatory stays pending appeals from disputes over “venue, personal jurisdiction, forum non conveniens, federal-court jurisdiction, and abstention” to name but a few. The minority suggests that “the mandatory-general-stay rule the Court adopts today would upend federal litigation as we know it.”
After raising this parade of horribles, however, Justice Jackson notes that, in fact, the majority’s holding “reaches only arbitration appeals under § 16(a).” She further concedes: “And it might well be that the concerns motivating today’s mandatory-general-stay rule do not extend beyond arbitration.” But Justice Jackson characterizes the result as a “windfall that the Court gives to defendants seeking arbitration, preferencing their interests over all others,” which she characterizes as “entirely unwarranted.”
D. Analysis of the Coinbase Decision
The Court’s Coinbase decision did not come “out of nowhere.” It is entirely consistent with the Supreme Court’s development of the FAA over the last two decades. With rare exception, the Court’s rulings have enlarged the preemptive power of the FAA, ostensibly to create “an equal treatment rule” for arbitration agreements. Not coincidentally, the Court’s expansion of the FAA has favored business interests over the interests of plaintiff-side class action lawyers and consumers. Many businesses now view arbitration as a shield against class action litigation. Their contracts, often adhesion contracts, require arbitration of disputes. Further, arbitration is defined as one-on-one dispute resolution, where the parties waive any right to participate in class action litigation. Justice Gorsuch in Epic Systems wrote that, when parties contract for “individual rather than class or collective action procedures, “the Arbitration Act seems to protect pretty absolutely” their agreement.
What distinguishes Coinbase from prior arbitration precedent is that the Court relies on judge-made common law rather than any provision of the FAA to establish its mandatory stay rule for § 16(a) interlocutory appeals. Because the FAA “does not say” what Congress intended, the Court holds the principles articulated in Griggs control the outcome. As described above, Griggs in essence holds that, when a notice of appeal is filed, the district court is ousted from further jurisdiction over the issue raised on appeal to avoid the trial and appeals courts from exercising jurisdiction over the same order at the same time.
But with respect to arbitration, the circuit courts did not agree on how to characterize the issue on appeal. Basically, the Second, Fifth, and Ninth Circuits did not believe Griggs ousted district courts from continuing to litigate a dispute after a motion to compel arbitration was denied. Those circuit courts, asserting the question of arbitration vel non was separate from the merits of the dispute, held that district courts could proceed to trial notwithstanding that the pending appeal might require vacating the judgment in the trial court if the arbitration clause was upheld. Six other circuits reached the opposite conclusion, holding that arbitrability of a case was the issue before the court of appeals, such that the district court was ousted from jurisdiction and could nor proceed to trial on the merits.
If anything, the Supreme Court is long overdue in resolving the circuit split that has existed since 1997. And the Court’s resolution of the split in favor of the majority of circuit courts hardly seems controversial. Not only has this been the majority rule for many years, but it is entirely consistent with the Court’s broadened protection of arbitration under the FAA.
The Ninth Circuit’s decision in Coinbase arguably interferes with the fundamental aspects of arbitration as defined by the Supreme Court since at least AT&T Mobility. The parties in Coinbase contracted for bilateral arbitration. They also agreed that an arbitrator rather than a court would resolve disputes over the validity of their arbitration agreement. As the Supreme Court noted, requiring the parties to engage in class action litigation, merits discovery, and trial while an appeal is pending diminishes the value of a § 16(a) appeal, denudes the parties’ of their contractual rights if arbitration is ultimately upheld, and undermines the FAA’s goal of enforcing arbitral agreements by potentially permitting litigation risks and costs to coerce a “blackmail settlement.”
Contrary to the dissenters, it is doubtful that the holding in Coinbase will open Pandora’s box to uncontrolled liberalization of stays pending appeals of forum-selection disputes, such as challenges to venue, personal jurisdiction, forum non conveniens, etc. It has been more than twenty-five years since the Seventh Circuit first ordered a Griggs stay in an arbitration appeal, and more than eleven years since the Fourth Circuit became the last of six circuits to impose mandatory Griggs stays pending § 16(a) interlocutory appeals. Yet the dissent does not identify a single escapee from Pandora’s box in any of these circuits, suggesting Coinbase is unlikely to unleash a flood of forum-selection disputes seeking to alter the established rules for stays in such cases. Additionally, Congress is the ultimate authority on the jurisdiction of the courts and on whether stays should or should not be granted during interlocutory appeals. It can, by statute, erase any decision of the Supreme Court to imposes mandatory stays relying on Griggs principles if it thinks the Court “got it wrong.”
In summary, Coinbase is another major win for parties seeking to enforce arbitral agreements, and particularly for parties seeking to avoid class action litigation by utilizing bilateral arbitration agreements that waive the right to participate in class action litigation. The result in Coinbase also gives the Supreme Court another opportunity to police the Ninth Circuit’s enforcement of the Court’s FAA precedents. Following remand, the Ninth Circuit will have to rule on the merits of the district court’s invalidation of the parties’ arbitration agreement. It is possible that Coinbase, Inc. v. Bielski could make a return visit to the Supreme Court.
