U.S. Supreme Court Mandates Stay of Trial Court Proceedings During Arbitrability Appeals

The U.S. Supreme Court, in an opinion by Justice Kavanaugh for a five-Justice majority, held in Coinbase, Inc. v. Bielski that when the losing party appeals a federal District Court’s order denying a motion to compel arbitration, the District Court must stay its pre-trial and trial proceedings during the pendency of the interlocutory appeal.

Kavanaugh, joined by Chief Justice Roberts and Justices Alito, Gorsuch, and Barrett, rejected Bielski’s various arguments, holding that the outcome was compelled by the principle illustrated in a 1982 case, reversing the judgment of the Ninth Circuit Court of Appeals, and remanding the case for further proceedings.

Justice Jackson issued a dissenting opinion, joined in full by Justices Sotomayor and Kagan and in part by Justice Thomas.

Five Things to Know about Coinbase

• Prior Precedent: The majority relied on a 1982 Supreme Court case, Griggs v. Provident Consumer Discount Co., for the principle that an appeal divests the District Court of control over those aspects of the case involved in the appeal.  The Court held 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,’” and thus the entire case (with very narrow exceptions) must be stayed pending appeal.
• Common Sense Case Management: Kavanaugh’s opinion emphasizes that the “common practice” of staying proceedings pending appeal “reflects common sense,” explaining that absent an automatic stay of trial and pre-trial proceedings in District Court pending an appeal on arbitrability, a number of negative consequences would follow, including:  (i) largely defeating the point of interlocutory appeal; (ii) irretrievably losing many of the benefits and efficiencies of arbitration; (iii) wasting scarce judicial resources; and (iv) leading to coercive settlements.
• Resolving the Split: Coinbase resolved a pre-existing split among the U.S. Courts of Appeal on the question.  Previously, the Courts of Appeal for the Second, Fifth, and Ninth Circuits had held that an interlocutory appeal on arbitrability did not trigger a mandatory general stay.  In contrast, the Third, Fourth, Seventh, Tenth, Eleventh, and District of Columbia Circuits agreed that an arbitrability appeal divests the District Court of jurisdiction during the pendency of the appeal.  This kind of “circuit split” is often a key factor in driving the Supreme Court to grant review of an issue.
• A Warning to Appellants: Among the arguments that Bielski advanced was that the Court’s decision would encourage frivolous appeals that would improperly delay District Court proceedings.  The majority opinion responds to this concern in a number of ways, including:  (i) noting that such frivolous appeals did not appear to be present in Circuits previously following the stay rule; (ii) highlighting the many tools that appellate courts have to deter frivolous appeals, including, inter alia, the possibility of sanctions; and (iii) expressing confidence, in its conclusion, that the Ninth Circuit on remand (and generally) will proceed expeditiously on arbitrability appeals.
• A Textualist Dissent: Justice Jackson, joined in full by Justices Sotomayor and Kagan and in Parts II, III, and IV of her opinion by Justice Thomas, rejected the majority’s rule and reasoning.  Jackson primarily takes a textualist approach, arguing that Congress’ decision not to provide for a general interlocutory stay for arbitrability appeals but to provide one in other areas of the same law must be respected.  She also contends that the majority’s reliance on a background rule of general stays of proceedings is misplaced, and that its reliance on Griggs is internally inconsistent.  Lastly, she takes issue with the majority’s policy analysis and warns that the logical conclusion of the majority’s rule would open a “Pandora’s Box” and subject to general stays a much wider array of appeals than the majority is willing to admit.

For further information, please contact Amal Bouchenaki, Partner, Jared Stein, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.