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District Court Proceedings Must Be Stayed During Interlocutory Appeals of Orders Denying Arbitration

Brian S Harvey

District Court Proceedings Must Be Stayed During Interlocutory Appeals of Orders Denying Arbitration
Radachynskyi via Getty Images

Section 16(a) of the Federal Arbitration Act (FAA), 9 U.S.C. § 16(a), permits an immediate, interlocutory appeal from an order denying a motion to compel arbitration. The FAA, however, is silent on whether proceedings in the district court may go forward while the party seeking arbitration—after losing on its motion to compel—then pursues an interlocutory appeal on the arbitrability issue. By a closely divided decision in Coinbase, Inc. v. Bielski, No. 22-105 (U.S. June 23, 2023), the U.S. Supreme Court filled the congressional void, holding that all district court proceedings must be stayed during a section 16(a) appeal.

Prior to Coinbase, given the flexibility enabled by statutory silence, district courts in three circuits had applied traditional, discretionary standards on a case-by-case basis for addressing stay requests pending appeals of orders denying arbitration. District courts in the Second, Fifth, and Ninth Circuits would grant a stay pending a section 16(a) appeal only if the losing arbitration movant persuaded the district court that (i) it would suffer irreparable injury if the district court litigation proceeded during its appeal, (ii) it would likely succeed on appeal and attain reversal of the district court’s rejection of arbitration, (iii) the balance of equities favored the granting of a stay, and (iv) public interest favored the granting of a stay. Depending on its weighing of these four discretionary factors, a district court could permit the litigation—having survived the motion to compel arbitration—to develop and proceed while the arbitrability issue was resolved in immediate appellate review.

In six other circuits—the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits—an appeal from an order denying arbitration was deemed automatically to terminate the jurisdiction of the district court. Merely filing the appeal brought the district court litigation to a complete halt, without regard to the potential merit (or lack of merit) of the appeal, and regardless of any other discretionary considerations in assessing a stay request. The district court had no discretion to permit the litigation to proceed during the appeal of arbitrability.

Resolving the Circuit Split

In Coinbase, in resolving the circuit split, the Supreme Court rejected the discretionary approach and engrafted into section 16(a) appeals a mandatory stay requirement. Justice Kavanaugh wrote the opinion of the Court, with Chief Justice Roberts and Justices Alito, Gorsuch, and Barrett joining. Justice Jackson wrote an extended dissent, joined by Justices Sotomayor and Kagan and, for the most part, by Justice Thomas.

The majority in Coinbase applied what it regarded as the “long-standing tenet of American procedure” that “an appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal,’” as stated in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982). Coinbase, No. 22-105, slip op. at 3 (quoting Griggs, 459 U.S. at 58). Because the only question in an appeal pursuant to section 16(a) is whether the case belongs in arbitration instead of court, as the majority in Coinbase saw it, the “entire case” is “essentially ‘involved in the appeal’”—not merely its arbitrability—whenever an arbitrability appeal is taken under section 16(a). Id.

Justice Kavanaugh treated the Ninth Circuit’s discretionary approach to the stay issue essentially as an outlier, stating that the “common practice” in section 16(a) appeals—at least, it might be added, outside the Second, Fifth, and Ninth Circuits—is for a district court to stay its proceedings while the interlocutory appeal on arbitrability is ongoing. Id. at 5. As Justice Kavanaugh viewed it, “[t]hat common practice reflects common sense,” because “[a]bsent an automatic stay of district court proceedings, Congress’s decision in §16(a) to afford a right to an interlocutory appeal would be largely nullified.” Id. Justice Kavanaugh concluded that “[i]f the district court could move forward with pre-trial and trial proceedings 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—even if the court of appeals later concluded that the case actually had belonged in arbitration all along.” Id. at 6. Further, according to Justice Kavanaugh, courts that had applied the discretionary standard (as had been done by the courts below in Coinbase) “often do not consider litigation-related burdens”—that is, the burden of continuing district court proceedings—to constitute irreparable harm for purposes of determining whether to grant a stay pending appeal. Id. at 9.

Justice Kavanaugh reasoned that, without a stay, “parties . . . could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration.” Id. at 6. Quoting Judge Henry Friendly on the point of view of the class action defendant, Justice Kavanaugh opined that this “potential for coercion is especially pronounced in class actions, where the possibility of colossal liability can lead to what Judge Friendly called ‘blackmail settlements.’” Id.

Justice Jackson in dissent argued forcefully for the maintenance of the discretionary, case-by-case standard. In Justice Jackson’s view, mandating an automatic stay in all section 16(a) appeals was simply a “windfall that the Court gives to defendants seeking arbitration, preferencing their interests above all others,” which could encourage meritless appeals and delay. Coinbase, slip op. at 15 (Jackson, J., dissenting). And, as noted below, Justice Jackson emphasized the plaintiffs’ perspective in her analysis of the potential settlement pressures implicated by the Court’s decision—quite the opposite of the majority opinion.

At Issue in Coinbase: Individualized Arbitration or Judicial Class Action?

In the Coinbase litigation, Coinbase had filed motions to compel individualized arbitration of the claims asserted in two putative class action complaints filed against it in the U.S. District Court for the Northern District of California. Coinbase maintained that its 2021 User Agreement required individualized arbitration of such claims under the Consumer Arbitration Rules of the American Arbitration Association. The district court had concluded that the delegation provision in the arbitration clause of Coinbase’s 2021 User Agreement was unconscionable and denied Coinbase’s motion to compel. Because the delegation provision applied only to user-initiated claims—and not to claims initiated by Coinbase—the district court ruled that the arbitration clause of Coinbase’s 2021 User Agreement lacked mutuality and therefore, under Ninth Circuit precedent, was unenforceable. Bielski v. Coinbase, Inc., No. C 21-07478 WHA (N.D. Cal. Apr. 8, 2022).

That question—whether the Coinbase 2021 User Agreement’s arbitration clause is unconscionable and thus unenforceable—remains pending on appeal before the Ninth Circuit, Bielski v. Coinbase, Inc., No. 22-15566 (9th Cir.). The appeal of the district court’s unconscionability ruling was argued in the Ninth Circuit on February 14, 2023, and on June 23, 2023—the day of the Supreme Court’s decision on the stay issue—was submitted to a Ninth Circuit panel for decision.

Significance of the Coinbase Decision

Coinbase adds a judge-made rule protecting potential arbitration when a district court denies a motion to compel arbitration, supplementing the protection of arbitration already explicitly provided by Congress when a district court grants a motion to compel. Section 16(a) of the FAA provides for immediate appeals of orders denying motions to compel arbitration but not of orders granting them. Section 16(b) of the FAA expressly provides that, absent the district court’s certification pursuant to 28 U.S.C. § 1292(b)—which is rarely granted—an appeal may not be taken from an order compelling arbitration. 9 U.S.C. § 16(b). Thus, unlike judicial proceedings that are terminated (or stayed) when arbitration is granted, the arbitration goes forward when judicial proceedings are denied.

Appellate review of a district court’s decision compelling arbitration ordinarily cannot be obtained until after the conclusion of the arbitral proceedings, by a post-arbitration petition in the district court seeking vacatur of the award pursuant to section 10(a) of the FAA, 9 U.S.C. § 10(a). And by then, the district court might be particularly disinclined to undo its earlier decision favoring arbitration. By then, the dispute will have been resolved on its merits in arbitration, with only the limited grounds afforded by section 10(a) for vacatur.

The practical impact of Coinbase is rooted in the Supreme Court’s ruling in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), that waivers of class or collective proceedings are enforceable when included in a valid arbitration agreement. The decision in Coinbase may present a modest, if temporary, victory for institutional parties defending mass disputes filed in court as putative class or collective proceedings. Given the post-Epic proliferation of class- and collective-action waivers in e-commerce user agreements and condition-of-employment arbitration provisions, such disputes may be subject to individualized arbitration rather than class or collective proceedings in court. As in Coinbase, if the district court concludes that the arbitration provision is unenforceable and a section 16(a) appeal is taken, class-based proceedings must be deferred until the appeal is decided.

Whether this deferral of proceedings is desirable, of course, depends on whether one favors arbitration, as defendants often do, or opposes it, a position often taken by plaintiffs—especially those seeking class or collective relief. Justice Jackson remarked in her dissent in Coinbase:

[W]hile the majority laments settlement pressure on parties seeking arbitration, . . . the rule it announces imposes settlement pressure in the opposite direction. With justice delayed while the case is on hold, parties “could be forced to settle,” . . . because they do not wish—or cannot afford—to leave their claims in limbo. Incongruously, the majority inflicts these burdens on the party that won the arbitrability issue before the district court (the party opposing arbitration).

Coinbase, No. 22-105, slip op. at 12 (Jackson, J., dissenting).

Justice Kavanaugh addressed the prospect of undue delay with the aspirational comment that “[o]n remand, we anticipate that the Ninth Circuit here, as we anticipate in §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.” Id. at 10 (majority opinion). Whether Justice Kavanaugh’s stated anticipation of expeditious proceedings in arbitrability appeals will be realized in experience, of course, remains to be seen. The timing of the Ninth Circuit’s coming decision on the unconscionability issue in Coinbase will prove illustrative.

Practice Pointer: Consider a Motion for Summary Disposition on Appeal

In seeking to effectuate Justice Kavanaugh’s anticipation of “appropriate expedition” in a section 16(a) appeal, practitioners opposing arbitration may consider seeking summary affirmance of the district court’s order denying arbitration. Although the Federal Rules of Appellate Procedure do not provide specifically for motions for summary affirmance, local rules and practice guides of several of the federal courts of appeal include provisions for summary disposition. See, e.g., D.C. Circuit, Handbook of Practice and Internal Procedures 36 (as amended through Mar. 16, 2021) (procedures for seeking summary disposition in the D.C. Circuit).

To be sure, the circuit’s standard for avoiding the typical, extended schedule for full appellate proceedings may present a high bar. As stated in Taxpayers Watchdog, Inc. v. Stanley, 819 F.2d 294, 297 (D.C. Cir. 1987), a “party seeking summary disposition bears the heavy burden of establishing that the merits of his case are so clear that expedited action is justified.” See also Groendyke Transp., Inc. v. Davis, 406 F.2d 1158 (5th Cir. 1969) (summary disposition on appeal is appropriate where “the position of one of the parties is clearly right as a matter of law so that there can be no substantial question as to the outcome of the case” or where “the appeal is frivolous”).

Conclusion

In sum, Coinbase represents another pro-arbitration decision by the Supreme Court. But its benefits may in practice prove to be relatively short-lived in particular cases. After all, an arbitration clause already found to be invalid by the district court (as was the case in Coinbase) will still meet its fate in the court of appeals. As always, much will turn on the drafting of the arbitration provision in the first place, well before any litigation arises, to ensure its compliance with prevailing standards of enforceability. It is noteworthy that in 2022 Coinbase revised its User Agreement so that it no longer contains the same delegation or arbitration clauses that ensnared it in the litigation over unconscionability that remains pending, after the detour to the Supreme Court, in the Ninth Circuit. See Kattula v. Coinbase Global, Inc., No. 1:22-cv-3250 (N.D. Ga. July 6, 2023) (finding that Coinbase’s revised, 2022 User Agreement is not unconscionable and granting Coinbase’s motion to compel arbitration of claims asserted in putative class action).

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