On June 23, 2023, the Supreme Court issued a decision in Coinbase, Inc. v. Bielski, No. 22-105, 2023 WL 4138983 (U.S. June 23, 2023), that will provide further protection for parties seeking arbitration. The issue presented to the Court was whether a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing. The Court held that a district court must stay its proceedings pending such an appeal.
This case stems from a putative class action accusing Coinbase, Inc. (“Coinbase”), a cryptocurrency exchange platform, of violating the Electronic Funds Transfer Act and Regulation E. Coinbase moved the District Court to compel arbitration of the dispute based on its user agreement with the plaintiff. On April 8, 2022, the District Court denied Coinbase’s motion to compel arbitration, holding that the delegation clause and the broader arbitration provision were unconscionable. Bielski v. Coinbase, Inc., No. C 21-07478 WHA, 2022 WL 1062049, at *6 (N.D. Cal. Apr. 8, 2022).
Coinbase filed an interlocutory appeal to the Ninth Circuit under § 16(a) of the Federal Arbitration Act, which authorizes an interlocutory appeal from the denial of a motion to compel arbitration. Coinbase then sought a stay from the District Court pending its interlocutory appeal. The District Court and the Ninth Circuit declined to stay the District Court’s proceedings pending appeal. Coinbase sought, and the Supreme Court granted certiorari.
The Supreme Court reversed the Ninth Circuit’s denial of Coinbase’s request for a stay pending its interlocutory appeal. The decision was based on the Griggs principle from Griggs v. Provident Consumer Discount Co., 459 U. S. 56 (1982), which demands that an appeal, including an interlocutory appeal, “divests the district court of its control over those aspects of the case involved in the appeal.” The Supreme Court held that although § 16(a) does not say whether district court proceedings must be stayed pending the interlocutory appeal, because the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is “involved in the appeal” and the Griggs principle therefore resolves the issue.
The Supreme Court also observed that the “common practice” of staying district court proceedings pending the outcome of § 16(a) interlocutory appeals reflects common sense because absent 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. Specifically, if the district court were permitted to move forward with pre-trial and trial proceedings, it would result in the irretrievable loss of the benefits of arbitration (including efficiency, less expense, and less intrusive discovery). Additionally, the parties could be forced to settle to avoid the district court proceedings that they contracted to avoid through arbitration, which the Supreme Court found especially troubling in the class action setting, “where the possibility of colossal liability can lead to … blackmail settlements.” Finally, the Supreme Court noted that permitting district courts to move forward pending a § 16(a) interlocutory appeal would result in the waste of scarce judicial resources that could be devoted to other pressing matters.
As a result of the Supreme Court’s decision, entities seeking to compel arbitration will not be required to move forward in federal court until an ultimate decision has been reached on their motion to compel arbitration—providing such entities additional protection from the costs and inefficiencies of federal court (and specifically from the high costs associated with defending and settling class actions) based on their contractual agreement to resolve disputes through arbitration.