SCOTUS Decides Appeal of a Denial of a Motion to Compel Arbitration Automatically Stays District Court Action

On June 23, 2023, the U.S. Supreme Court published its highly anticipated ruling in Coinbase v. Bielski, deciding in favor of Coinbase. In a 5-4 decision authored by Justice Kavanaugh, the Supreme Court held that litigation in district court is automatically stayed pending an appeal of a decision denying a motion to compel arbitration, reversing the Ninth Circuit and resolving a deep circuit split on this issue.

As outlined in detail in our prior publication discussing this case, the Ninth Circuit was one of three minority circuits (the Second, Fifth and Ninth Circuits) holding that the decision to stay litigation in district court pending the appeal of a denial of a motion to compel arbitration was left to the discretion of the district court judge. In siding with the majority circuits, the Supreme Court explained that Section 16(a) of the Federal Arbitration Act, which provides that a party seeking arbitration may file an immediate interlocutory appeal when a district court denies a motion to compel arbitration, was enacted against “a clear background principle” that an appeal “divests the district court of its control over those aspects of the case involved in the appeal.”

The Supreme Court reasoned that the practice of the majority circuits to stay proceedings during an interlocutory appeal on arbitrability “reflects common sense” because many of the “benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost” if a district court could move forward with pre-trial and trial proceedings while the appeal regarding arbitrability was ongoing. Further, the Supreme Court considered the potential for coercion absent a stay, as parties “could be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration.” Finally, the Supreme Court noted that, from the judiciary’s perspective, allowing cases to proceed simultaneously in the district court and the court of appeals creates the possibility of a “detrimental result” that “the district court will waste scarce judicial resources … on a dispute that will ultimately head to arbitration.”

Key Takeaways

• This decision is favorable for businesses trying to enforce their arbitration agreements, as defendants forced to appeal orders denying arbitration motions no longer risk facing the substantial challenges and costs that come with concurrently litigating the underlying district court action while appealing the arbitration denial. This is a significant change for those litigating in the Second, Fifth and Ninth Circuits, which, as noted above, previously did not grant automatic stays.
• It is anticipated that companies evaluating the pros and cons of arbitration agreements will consider this decision as a significant development favoring arbitration agreements.