The Supreme Court just agreed to review an important question at the intersection of arbitration law and appellate practice. Its ultimate decision in the case could provide a major boost to defendants seeking to enforce arbitration agreements in circuits (including the Second and Ninth) where they currently operate under a disadvantageous rule.
Section 16(a) of the Federal Arbitration Act permits immediate interlocutory appeal of a district court's denial of a motion to compel arbitration. When a defendant exercises that right, what happens to the underlying district court litigation-does it proceed apace or is it automatically stayed until the appellate court decides whether the dispute should be in court at all? The circuits have long disagreed on that question, and on December 9 the Supreme Court granted certiorari to answer it.
The case started when two putative class actions were filed against Petitioner Coinbase, Inc. in the Northern District of California. Coinbase moved to compel arbitration in both cases, arguing that plaintiffs were required to arbitrate their claims under Coinbase's user agreements. When the district court ruled against Coinbase, Coinbase appealed and asked the Ninth Circuit to stay both district court proceedings. Coinbase urged the Ninth Circuit to revisit its longstanding view that the Arbitration Act does not automatically stay litigation pending an arbitrability appeal. The Ninth Circuit declined to do so and denied the stay requests.
As Coinbase showed in its certiorari petition, federals appeals courts have long been divided over the effect of arbitrability appeals on district court proceedings. Six circuits-beginning with the Seventh Circuit in 1997, and followed by the Eleventh, Tenth, Fourth, Third, and D.C. Circuits-have held that an arbitrability appeal under Section 16(a) divests the district court of jurisdiction during the appeal. In those circuits, a stay of district court proceedings pending appeal is thus automatic. "Whether the litigation may go forward in the district court is precisely what the court of appeals must decide," the Seventh Circuit reasoned, analogizing the question of arbitrability to qualified immunity and other dispositive threshold questions. Bradford-Scott Data Corp. v. Physician Comput. Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997). But three Circuits-starting with the Ninth Circuit in 1990, followed by the Second and Fifth Circuits-have disagreed, insisting that the merits of a case are independent from its arbitrability, and raising concerns about delays resulting from stays. In those circuits, a defendant appealing denial of a motion to compel arbitration can secure a stay only if it can satisfy the traditional stay factors (including probability of success on the merits and irreparable harm).
The Supreme Court's decision should resolve this question once and for all, resulting in a uniform rule across the courts of appeals. Companies with arbitration agreements will be rooting for Coinbase and the automatic-stay rule it advocates. The case, Coinbase, Inc. v. Bielski, No. 22-105, will be argued and decided next year.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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