In Coinbase, Inc. v. Bielski, the Supreme Court of the United States resolved a circuit split over whether district courts must stay proceedings while an interlocutory appeal of a denial of a motion to compel arbitration is ongoing. The Supreme Court held they must.
Abraham Bielski filed a putative class action against Coinbase, Inc. in the United States District Court: Northern District of California, alleging that Coinbase failed to replace funds fraudulently taken from users’ accounts. Coinbase filed a motion to compel arbitration based on the User Agreement which provides for dispute resolution through binding arbitration. The District Court denied the motion to compel arbitration. Coinbase filed an interlocutory appeal to the Ninth Circuit Court of Appeals under the Federal Arbitration Act, 9 U.S.C. § 16(a), and moved to stay the District Court proceeding pending appeal. The District Court denied Coinbase’s motion to stay, and the Ninth Circuit Court of Appeals upheld the District Court’s decision not to stay proceedings based on Ninth Circuit precedent, under which an appeal from the denial of a motion to compel arbitration does not automatically stay district court proceedings. Most other Courts of Appeals, however, held that a district court must stay proceedings while an interlocutory appeal of a motion to compel arbitration is pending. Accordingly, the Supreme Court granted certiorari to resolve the circuit split.
In a 5-4 decision authored by Justice Kavanaugh, the Supreme Court reversed the Ninth Circuit and held that district courts must stay its proceeding while an interlocutory appeal on the question of arbitrability is ongoing.
The Court acknowledged that the Federal Arbitration Act does not specifically say whether district court proceedings must be stayed pending the resolution of an interlocutory appeal. Nevertheless, the Court, citing Griggs v. Provident Consumer Discount Company., 459 U.S. 56 (1982), held that a clear background principle against which Congress enacted the Federal Arbitration Act was that an appeal divests a district court of its jurisdiction over any aspect of a case involved in the appeal. Where the question of arbitrability of a case is on appeal, the entire case is involved in the appeal by definition, and therefore district court proceedings must be stayed. The Court explained its holding reflects common sense, as any other holding would fail to protect the most basic benefits of arbitration: efficiency, less expense, and less intrusive discovery. Without a stay, parties could be coerced to settling, especially in class actions, to avoid costly court proceedings. The Court also recognized that without a stay, the district court will waste judicial resources that could be devoted to other matters.
The dissent, authored by Justice Jackson, criticized the majority for departing from the traditional approach which, according to Justice Jackson, affords the trial judge discretion in determining whether the underlying case should be stayed. Justice Jackson argued the majority continued to invent new rules which perpetually favor defendants seeking arbitration.
Although this was a case concerning a consumer class action, there is applicability to California employment litigation. California state courts already require trial courts to stay proceedings while a denial of a motion to compel arbitration is pending on appeal, including in employment cases. Under Bielski, federal courts in the Ninth Circuit must stay litigation in which an employer appeals the denial of a motion to compel arbitration.
* Mahmood Jeewa is a summer associate in the firm’s Century City office.