John S. Delikanakis | Snell & Wilmer
On June 23, 2023, the U.S. Supreme Court held in Coinbase v. Bielski that U.S. district court proceedings are automatically stayed during a non-frivolous appeal of a denied motion to compel arbitration. The Court’s decision can be read here.
Section 16(a) of the Federal Arbitration Act (FAA) authorizes the immediate appeal of a denied motion to compel arbitration. Stays pending such appeals were subject to the discretion of a district court judge, as the FAA does not specify whether a district court must stay litigation pending a denied motion to compel arbitration. The U.S. circuit courts of appeal and the literature on the topic were split as to whether an automatic stay rule should be created for Section 16(a) appeals. That split has been resolved.
The Coinbase Court’s reasoning in creating an automatic stay is grounded in its rulings in Griggs v. Provident Consumer Discount Co., 459 U.S. 56 (1982), which noted 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 court reasoned in Coinbase that because the purpose of any appeal of the denial of a motion to compel arbitration is to decide whether a case should be adjudicated in the district court or in arbitration, the entire case is “involved in the appeal.” Thus, the Court reasoned there are no aspects of the case that justify a district court’s retention of jurisdiction over the case during appeal. Further policy considerations raised by the Court included that absent an automatic stay, many of the benefits bargained for in a contract’s arbitration provision (efficiency and more limited discovery) would be lost absent an automatic stay, even if ultimately successful. The court also noted that absent an automatic stay, parties would be unfairly coerced to settle litigation, especially class-action litigation, that parties had agreed to avoid via an arbitration provision.
The court’s dissent criticized the creation of the new automatic stay rule as “coming out of nowhere,” pointing to the FAA’s silence on the subject. During oral argument, dissenting Justice Sotomayor said, “[A]ll I know is that when Congress thinks about a stay, it either says yes, do it, or no, don’t do it. . . . When it’s not thinking about a stay, it doesn’t say anything.” The dissenting justices also criticized the majority’s decision in that it was unsupported by the historically significant discretion granted to courts to control their dockets and weigh the competing interests of parties before exercising the power to impose a stay.
A few practical takeaways:
- Coinbase is a significant win for parties seeking to compel arbitration and for the enforceability of the contractual rights contained in arbitration provisions (often referred to as a contract within a contract). This is particularly true in the context of consumer class actions.
- Arbitration provisions are often cut and paste into agreements from prior agreements without periodic critical review. Given the increased value of arbitration provisions post-Coinbase, companies, particularly those targeted in consumer class actions, should consider a review of their arbitration clauses to ensure that they are as clear and concise as possible to help avoid any challenges on appeal.
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