Supreme Court Confirms Automatic Stay When Motions To Compel Arbitration Are Denied

The U.S. Supreme Court’s June 23, 2023, majority decision in Coinbase, Inc. v. Bielski, Case No. 22-105 requires a stay of district court litigation if a party loses a motion to compel arbitration and pursues the right of interlocutory appeal granted by 9 U.S.C. § 16(a). Section 16(a) is the provision of the Federal Arbitration Act granting the right to an interlocutory appeal when a district court denies a motion to compel arbitration. Section 16(a) is clear on the right of appeal but does not address in the text a mandatory stay pending the appeal.

The issue on appeal arose when the U.S. District Court for the Northern District of California denied Coinbase’s motion to compel arbitration and then denied Coinbase’s motion to stay the litigation while it pursued its right to an interlocutory appeal before the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit also declined to order a stay, relying on existing Ninth Circuit precedent holding that an appeal from an order denying a motion to compel arbitration does not require a mandatory stay of litigation pending in the District Court. The U.S. Supreme Court reversed and remanded the case, noting the practice of the Circuits that require a stay and its view of the practical effect on the right to an interlocutory appeal if the litigation moves forward:

Prior to this decision, the Circuit Courts of Appeal were split about whether district court proceedings must be stayed pending a decision on an interlocutory appeal from the denial of a motion to compel arbitration. The Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits all held that there is an automatic stay during the pendency of such an appeal. The Second, Fifth, and Ninth Circuits held that there was no automatic stay, and that courts would instead grant or deny a stay based upon the traditional stay factors: likelihood of success on the merits of the appeal; the possibility of irreparable harm in the absence of a stay; the balance of the equities; and the public interest.

Writing for the 5-4 majority, Justice Kavanaugh rejected the use of the traditional factors in considering whether to grant a stay, holding instead that the rule requires an automatic stay. The majority noted that Section 16(a) of the Federal Arbitration Act (“FAA”), does not specifically reference stays pending appeal, but held that Section 16(a) was enacted against the backdrop of the Court’s decision in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982). In Griggs, the Court held that an appeal “divests the district court of its control over those aspects of the case involved in the appeal.” ¹ The majority reasoned that “[b]ecause the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case is essentially ‘involved in the appeal.'” Thus, the Court concluded, an appeal from the denial of a motion to compel arbitration triggers a mandatory stay under the Griggs principle.

The majority found that this outcome was supported by several policy rationales. They stated that if the district court proceedings continued, the benefits of arbitration “would be irretrievably lost”; the district court and the parties would be burdened with potentially wasteful discovery and motion practice that might ultimately be for naught if the case is sent to arbitration following appeal; and “parties could also be forced to settle to avoid the district court proceedings … that they contracted to avoid through arbitration.” The majority further held that, in their view, Congress typically is silent about automatic stays during the pendency of interlocutory appeals. According to the majority, Congress normally only says something about stays when it authorizes an interlocutory appeal but does not wish to authorize a stay pending appeal.

The majority also noted that the traditional stay analysis is not sufficient to protect parties seeking to compel arbitration in this situation, since litigation-related burdens typically do not warrant a stay under the traditional approach, and since “the background Griggs rule applies regardless of how often courts might otherwise grant stays under the ordinary discretionary stay factors.” Finally, the majority rejected the plaintiff’s contention that no stay was warranted under the Griggs rule because the Court had previously held in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1 (1983) that questions of arbitrability are “severable from the merits of the underlying disputes.” Id. at 21. The majority held that Griggs applies because “the district court’s authority to consider a case is ‘involved in the appeal’ when an appellate court considers the threshold question of arbitrability.” Thus, the majority held that an automatic stay is appropriate in cases involving appeals from denials of motions to compel arbitration.

Justice Jackson, joined by Justices Sotomayor and Kagan, dissented, with Justice Thomas joining all but Parts I and V of the dissent. Their view reflects essentially the opposite position on each aspect of the majority’s analysis.

The Court’s decision has major implications for litigants across the country, particularly for litigants in large states like New York, Texas, and California where the Circuit Courts had previously rejected the automatic stay. Parties seeking to enforce contractual arbitration provisions will now be able to stay district court cases for a potentially significant period—first while the motion to compel arbitration is pending and then, if the motion is denied, during the pendency of an appeal.