On December 9, 2022, in Coinbase, Inc. v. Bielski, the U.S. Supreme Court granted certiorari to determine whether the appeal of a denial of a motion to compel arbitration ousts the district court of jurisdiction to proceed while the appeal is pending.
The Federal Arbitration Act (FAA) provides an exception to the usual rule that a party must await a final judgment before taking an appeal from a decision of a U.S. district court. 28 U.S.C. § 1291. Section 16 of the FAA states that “[a]n appeal may be taken from . . . an order . . . denying a petition under section 4 of this title to order arbitration to proceed,” 9 U.S.C. § 16(a)(1)(B), or, in matters falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, “from. . . an order . . . denying an application under section 206 of this title to compel arbitration[.]” 9 U.S.C. § 16(a)(1)(C).
Thus, if a district court denies a motion under the FAA to compel arbitration, the FAA affords the unsuccessful movant the statutory right to an immediate, interlocutory appeal. An interlocutory order compelling arbitration, on the other hand, is not immediately appealable, 9 U.S.C. § 16(b), and the dispute must proceed through arbitration, with review of the district court’s arbitrability decision deferred to post-arbitration judicial proceedings pursuant to section 10 of the FAA, 9 U.S.C. § 10, seeking vacatur of the award.
The FAA, however, does not address whether the litigation may go forward in the district court, while an interlocutory appeal on arbitrability, following the denial of a motion to compel arbitration, proceeds in the circuit court of appeals.
The circuits have split on the issue. Six circuits—the Third, Fourth, Seventh, Tenth, Eleventh and D.C. Circuits—hold that a “nonfrivolous” appeal from the denial of a motion to compel arbitration automatically terminates the jurisdiction of the district court. Three circuits have gone the other way, permitting the litigation in the district court to continue during the appeal of the district court’s refusal to compel arbitration. The Second, Fifth, and Ninth Circuits have held that litigation of the dispute on the merits may proceed in the district court. Under this three-circuit minority view, a request for a stay of the district court litigation pending the outcome of an arbitrability appeal pursuant to FAA section 16 is to be determined in the discretion of the district court, typically informed by balancing such considerations as likelihood of success on appeal and irreparable injury. There is no automatic stay to preserve the sole issue on appeal—whether the dispute should even be in the district court at all.
In Coinbase, Inc. v. Bielski, cert. granted (U.S. Dec. 9, 2022) (No. 22-105), the Supreme Court granted review to resolve the circuit split. The question for review, as presented in Coinbase, Inc.’s Petition for Writ of Certiorari, is as follows:
Does a non-frivolous appeal of the denial of a motion to compel arbitration oust 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 does the district court retain discretion to proceed with litigation while the appeal is pending, as the Second, Fifth and Ninth Circuits have held?
In the litigation below, the district court had denied motions by Coinbase to compel individualized arbitration pursuant to the Consumer Arbitration Rules of the American Arbitration Association, as provided by the Coinbase User Agreement, of claims asserted in two putative class action complaints in the Northern District of California. In one of the cases, Abraham Bielski alleged on behalf of a putative class of Coinbase customers that the Electronic Funds Transfer Act, 15 U.S.C. §§ 1693–1693r, requires Coinbase to recredit customers for cryptocurrency stolen by a scammer from the customers’ Coinbase accounts. Bielski v. Coinbase, Inc., No. C 21-07478 WHA (N.D. Cal. Apr. 8, 2022) (order denying motion to compel arbitration). ln the other case, the putative class action complaint alleged that Coinbase’s promotion of a “Dogecoin Sweepstakes,” which required participants to confirm agreement with the Coinbase User Agreement, violated California law in certain respects. Suski v. Marden-Kane, Inc., No. 21-cv-04539-SK (N.D. Cal. Jan. 11, 2022) (order denying motions to compel arbitration and to dismiss).
In both cases, following the denials of its motions to compel arbitration, Coinbase filed interlocutory appeals under section 16 of the FAA and sought stays of the district court litigation. The district courts in both cases refused to stay the district court proceedings pending appeal. See Bielski, No. C 21-07478 WHA (N.D. Cal. June 7, 2022) (order denying motion to stay pending appeal); Petition for Writ of Certiorari, app. F (appending order in Suski denying motion to stay). The Ninth Circuit declined to stay either district court proceeding as the appeals progressed.
Coinbase petitioned for Supreme Court review jointly of the Ninth Circuit stay refusals in both Bielski and Suski. Although the district court in Suski subsequently stayed its proceedings pending the Ninth Circuit appeal, no such stay is in place in Bielski. The litigation is currently proceeding in the Bielski trial court as the appeals progress in the Ninth Circuit of the denials of the motions to compel arbitration in both cases and in the Supreme Court on the denials of a stay pending those appeals. Although Coinbase requested expedited consideration of its petition for certiorari (which the Court denied in August), it has not requested that the Supreme Court stay the district court proceedings in Bielski.
The Ninth Circuit held oral argument concerning the denial of Coinbase’s motion to compel in Bielski on November 18, 2022. Oral argument is scheduled in Coinbase’s appeal in Suski for February 14, 2023. Thus, the appeals have been proceeding apace, raising the prospect that a decision by the Ninth Circuit on the denials of the motions to compel arbitration could moot the case in the Supreme Court. Coinbase has informed the Supreme Court in a letter that it will ask the Ninth Circuit or, failing there, the Supreme Court, to hold the Ninth Circuit appeals in abeyance pending the high court’s decision on the stay issue. In the same letter to the Court, as a frequent defendant in actions by plaintiffs with arbitration agreements, Coinbase maintains that the issue now before the Supreme Court—whether a litigation stay pending appeal of a denial of a motion to compel arbitration is mandatory—is an issue that is “capable of repetition yet evading review,” and thus would not be mooted by decision of the Ninth Circuit on its appeals.
It would be difficult to overstate the practical impact of the grant or denial of a stay pending appeal following a district court’s denial of a motion to compel individualized arbitration of claims asserted as a putative class action, as presented in Bielski. If a stay is denied, of course, the litigation in the district court progresses onward—though discovery, motions practice, class certification proceedings, and perhaps trial—all before the “threshold” arbitrability question is resolved on appeal. Significant resources and expense must be devoted to putative class action litigation in cases that, the appellate court could well decide, did not really belong in the district court in the first place. Alternatively, if a stay is granted, all proceedings on the merits are deferred pending the final determination of the proper forum and process: Will it be numerous individualized arbitrations or a putative class action in court?
Coinbase maintained in its cert petition that the “minority view” of the Ninth Circuit vitiates the right afforded by section 16 of the FAA to an immediate interlocutory appeal of a denial of a motion to compel arbitration. Refusing a stay pending appeal, it argues, can “effectively nullify” arbitration agreements, especially those requiring individualized arbitration (as does the Coinbase User Agreement)—because all the litigation events that the arbitration clause was supposed to avoid instead unfold in putative class action proceedings in district court.
The Suski plaintiffs, interestingly, did not oppose certiorari. Acknowledging the entrenched circuit split, they filed a Brief in Support of granting the writ—while maintaining of course that the Ninth Circuit had correctly denied the stay. In his Brief in Opposition, Mr. Bielski urged (among other arguments) that just because the FAA provides the right to an interlocutory appeal of an order denying arbitration does not mean that the FAA also creates a right to a mandatory, automatic stay of all district court proceedings while the interlocutory appeal on arbitrability is resolved. As Mr. Bielski points out, the FAA does not provide for such an automatic stay and, he contends, the rule in circuits mandating an automatic stay specially for arbitrability appeals runs afoul of the Court’s holding in Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713 (2022), that “a court may not devise novel rules to favor arbitration over litigation.”
Mr. Bielski maintains that the correct approach—as implemented by the Ninth Circuit in the proceedings below—is to apply the “general rule” that an appeal “divests the district court of its control over those aspects of the case involved in the appeal,” Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982), but not over issues not involved in the appeal. Under this approach, only the arbitrability of the case is “involved in the appeal”—not the merits of the claims or defenses. In this view, the district court maintains jurisdiction over the merits, and it may exercise its discretion—as with other appeals not involving arbitrability questions—to determine whether a stay pending appeal is appropriate in the particulars of the case before it.
Until Bielski, the Supreme Court had accepted no cases this term involving the FAA—in contrast with the multiple arbitration cases it decided last term. Given the predominance of “historic” cases on the Court’s recent dockets, it is encouraging that the Court, absent potential mootness in Bielski, will return by this summer to the vineyards of alternative dispute resolution.
