On June 23, 2023, a divided U.S. Supreme Court held that an interlocutory — or immediate — appeal from the denial of a motion to compel arbitration automatically stays litigation in the federal district court. Such an appeal holds the district court proceedings in abeyance until the higher court decides whether the matter is arbitrable. The Supreme Court’s decision helps defendants who have lost a motion to compel arbitration, ensuring that costly discovery and merits litigation remain stayed until the appropriate federal court of appeals determines whether the dispute is arbitrable. But it also raises questions about when, in other contexts, an interlocutory appeal requires an automatic stay.

Background

Typically, the losing party in federal district court must wait for the entire case to be over before they may appeal an unwelcome decision, that is, an unwelcome final decision. However, this general rule of appellate jurisdiction has many exceptions. Relevant here, Section 16(a) of the Federal Arbitration Act permits a defendant to take an interlocutory appeal from the district court’s denial of a motion to compel arbitration.¹

The court’s 5-4 decision in Coinbase v. Bielski holds that during the pendency of such an appeal, district court proceedings must be stayed. The court’s Coinbase decision resolved a circuit split and refused to leave it up to the district court to decide whether to grant or deny a stay pending appeal.

This case arose from a putative class action. There, the plaintiff alleged that cryptocurrency platform Coinbase had failed to replace funds that were fraudulently taken from user accounts. The district court denied Coinbase’s motion to compel arbitration under an arbitration clause contained in the Coinbase user agreement.

Coinbase immediately appealed that ruling under Section 16(a), but the district court declined to stay the action pending appeal. When Coinbase asked the U.S. Court of Appeals for the Ninth Circuit to stay the proceedings pending appeal, that court similarly denied Coinbase’s request.

The Supreme Court’s Opinion

Writing for the majority, Justice Brett M. Kavanaugh relied on the principle announced in Griggs v. Provident Consumer Discount Co.² that an appeal divests the district court of jurisdiction over those aspects of the case involved in the appeal. The Griggs principle mandates a stay, the majority reasoned, because the question of whether litigation may proceed in the district court is the very same issue presented for resolution on appeal. In support of this conclusion, Kavanaugh relied on legal treatises endorsing the stay approach, lower court decisions requiring a stay in the double jeopardy and qualified immunity contexts, and practical, prudential considerations. Such considerations included the potential for “blackmail settlements” and the irretrievable loss of the asserted benefits of arbitration, like efficiency, if defendants are forced to litigate an arbitrable matter. These considerations are heightened, the court noted, in class actions, which can inflict “colossal liability” on a defendant.

The court compared an interlocutory appeal without an automatic stay to “a lock without a key, a bat without a ball, a computer without a keyboard — in other words, not especially sensible.” As a final point, the majority observed that because the Griggs rule already requires an automatic stay of any aspect of the case that is involved in an appeal, Congress usually only includes statutory “non-stay” provisions disallowing stays.

The court was motivated by the reality that without an automatic stay, the defendant’s potential right to avoid litigation through arbitration would be irreparably lost. That permanent damage might occur if the status quo is not frozen while the appellate review on arbitrability proceeds. And, as the court analogously explained, that is why in other areas of the law — spanning both the civil and the criminal realms — such as qualified immunity and double jeopardy, various federal courts of appeals permit interlocutory appeals with automatic stays of district court proceedings.

The majority also dispensed with the five arguments raised by respondent Bielski. Briefly, it rejected that mandatory stays will trigger frivolous appeals that appellate courts are not otherwise equipped to handle, distinguished certain statutes containing explicit stay requirements, concluded an automatic stay will not create an “arbitration-preferring procedural rule,” and brushed aside Bielski’s argument that the question of arbitrability is severable from the merits. Further, it cautioned that the ordinary discretionary stay factors are inadequate to protect parties’ rights pending a Section 16(a) appeal.

The Dissent

Justice Ketanji Brown Jackson authored a detailed dissent, which Justices Clarence Thomas, Sonia Sotomayor, and Elena Kagan joined.³ The dissent began by pointing out that while Section 16(a) explicitly authorizes an interlocutory appeal from the denial of a motion to compel arbitration, it does not provide that a stay of pretrial and trial proceedings in the district court should automatically follow. In the absence of clear language from Congress, the true default, according to Justice Jackson, is that the decision of whether to issue a stay pending appeal lies within the discretion of “the judge closest to a case.” Under that view, the district judge evaluating familiar equitable principles and applying them to the specific case before them is entitled to deference.

The dissent saw Griggs very differently from the way the court did. In particular, Justice Jackson characterized Griggs as an unremarkable per curiam decision standing for the prosaic proposition that a trial court and an appellate court should avoid exercising control over the same order or judgment at the same time. Read correctly, Justice Jackson argued, Griggs merely prevents a district court from revisiting whether to compel arbitration while the interlocutory appeal is pending, rather than putting the entire case on ice until the appeal is over. And, the dissent continued, the practical considerations serving as the majority’s true motivators could easily be turned on their heads. For example, the majority’s purported goal of promoting judicial efficiency is hardly served by “forcing district court proceedings to a halt — for months or years while the appeal runs its course.”

Finally, the dissent cautioned that the court’s reasoning could easily be applied to any appeal over the proper forum for a dispute, including those involving forum-selection clauses, venue, personal jurisdiction, and forum non conveniens. Taking this idea a step further, Justice Jackson noted that nearly every right that could support pretrial dismissal of a case might loosely be described as conferring a “right not to stand trial.” She therefore (rhetorically) asked: “Does every interlocutory appeal concerning a case-dispositive issue now trigger a mandatory general stay of trial court proceedings?”

Key Takeaways

Over the last decade, the Supreme Court has been very active in this space. The court frequently has taken cases and decided in favor of defendants seeking to enforce arbitration agreements. This trend is likely to continue. And Coinbase ensures that expensive litigation will be frozen in aspic until the appropriate U.S. court of appeals weighs in as to whether the matter is arbitrable.

Moving forward, defendants seeking to compel arbitration have a new tactical advantage. If the motion to compel is denied, a defendant with a non-frivolous argument should seriously consider filing an interlocutory appeal — which now automatically freezes the case in the district court until the appeal is resolved.

For questions about how to ensure that arbitration provisions remain enforceable and in compliance with applicable laws, contact one of the authors or an attorney in Taft’s Arbitration and Mediation team.

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¹See 16 U.S.C. § 16(a).
²459 U.S. 56 (1982) (per curiam).
³Justice Thomas joined only Parts II, III, and IV of the dissent and did not write separately. Justice Thomas’ textualism appears to explain his vote and decision to join those sections of Justice Jackson’s dissent.