The United States Supreme Court recently granted a petition for certiorari filed by cryptocurrency exchange Coinbase, which asks the Court to resolve a deep circuit split on whether a lawsuit should be automatically stayed pending a non-frivolous appeal of a decision denying a motion to compel arbitration.
The petition arises from orders issued in two separate actions (Bielski v. Coinbase and Suski, et al. v. Coinbase) pending in the Northern District of California, which denied Coinbase’s motions to compel the actions to arbitration and declined Coinbase’s requests to stay the matters pending appeal of the decisions denying arbitration. The Ninth Circuit upheld the lower courts’ decisions denying stays in the cases pending appeal. Coinbase filed a joint petition for a writ of certiorari to review the two rulings and resolve a circuit split on the issue.
Under § 16(a) of the Federal Arbitration Act, when a district court denies a motion to compel arbitration, the party seeking arbitration may file an immediate interlocutory appeal. However, a circuit split exists over whether the appeal automatically requires the district court proceedings to be stayed until the appeal is resolved or whether the district court retains the discretion to proceed with litigation while an appeal is pending. Nine courts have addressed this issue. Currently, the Ninth Circuit is on the minority side of the circuit split that does not automatically grant a stay of litigation proceedings pending an appeal of a denial of a motion to compel arbitration. The question presented in these cases is whether a non-frivolous appeal of the denial of a motion to compel arbitration divests the district court of jurisdiction to proceed with the litigation pending appeal.
In Bielski v. Coinbase, a Coinbase user alleged that a scammer that tricked him into giving access to his Coinbase account stole more than $31,000 from him and filed a putative class action complaint in the Northern District of California. Coinbase moved to compel arbitration pursuant to the arbitration agreement in its User Agreement. U.S. District Judge William Alsup denied Coinbase’s motion to compel arbitration.
In Suski, et al. v. Coinbase, Coinbase customers filed a putative class action against alleged Coinbase advertising and sales practices in the Northern District of California. Again, Coinbase moved to compel arbitration pursuant to the arbitration agreement in its User Agreement. As in Bielski, and without reference to Judge Alsup’s decision, U.S. District Judge Sallie Kim denied Coinbase’s motion and held that a forum selection clause in the “Official Rules” for the sweepstakes superseded the User Agreement’s arbitration provision.
Coinbase filed interlocutory appeals of the denials of the motions to compel arbitration pursuant to § 16(a) of the Federal Arbitration Act and asked the District Courts to stay the underlying proceedings pending appeal. Both District Courts denied Coinbase’s request.
In both Bielski and Suski, Coinbase asked the Ninth Circuit to stay the District Courts’ proceedings pending resolution of its interlocutory appeals presenting the question of whether its motions to compel arbitration were wrongly denied. Coinbase acknowledged that the Ninth Circuit’s 1990 decision in Britton v. Co-op Banking Grp. held that automatic stays were not warranted for appeals from the denial of a motion to compel arbitration. In both Bielski and Suski, Coinbase argued that Britton was decided incorrectly and outlined the six circuits that expressly rejected Britton’s reasoning and urged the Ninth Circuit to reconsider Britton en banc. In both cases, the Ninth Circuit denied Coinbase’s request and Coinbase appealed to the Supreme Court.
Coinbase’s petition requests that the Court resolve a 6-3 split among circuit courts on whether there should be automatic stays of litigation proceedings pending a non-frivolous appeal of a denial of a motion to compel arbitration. The minority circuits—the Second, Fifth, and Ninth Circuits—have held that a district court retains the discretion to proceed with litigation while an appeal of a denial of a motion to compel arbitration is pending. The majority circuits—the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits—have held that a non-frivolous appeal of a denial of a motion to compel arbitration divests a district court’s jurisdiction to proceed with the litigation pending appeal.
In Britton, the Ninth Circuit became the first court of appeals to address whether an appeal from the denial of a motion to compel arbitration divests the district court of jurisdiction and triggers a mandatory stay. It adopted what has become the minority position. The Court maintained that a district court’s power to proceed with the case on the merits is an independent issue from arbitrability. The Ninth Circuit also expressed concerns that automatic stays can give a crafty litigant the ability to stall a trial by filing a frivolous appeal. The Second Circuit addressed this issue next and adopted the Ninth Circuit’s position, and the Fifth Circuit subsequently followed the Ninth and Second Circuits.
Six courts of appeals have rejected this minority view. In Bradford-Scott Data Corp. v. Physician Computer Network, the Seventh Circuit was the first to hold that an arbitrability appeal divests the district court of jurisdiction. The Court rejected the reasoning in Britton and held that when a party appeals arbitrability, whether the litigation may go forward in the district court is the same question that the appellate court must decide. The Court reasoned that proceeding with litigation defeats the purpose of the appeal, which is to determine whether the case should be litigated in the first place. Continuing litigation pending appeal creates a risk that a district court proceeds with a case over which it may lack jurisdiction. Five other courts of appeals subsequently agreed with the Seventh Circuit’s position in Bradford-Scott Data. The majority view also voices concerns about the significant challenges and costs that defendants forced to appeal their arbitration denials face if forced to concurrently fight the underlying cause of action while appealing the arbitration denial. The majority view recognizes the Ninth Circuit’s concern about the potential misuse of an appeal to stall trial or disrupt the district judge’s schedule by filing frivolous appeals, but they deem this concern met by the appellee’s ability to dismiss the appeal as frivolous or to affirm summarily.
The Supreme Court’s decision will have significant implications for businesses facing appeals of decisions denying motions to compel arbitration as this issue arises in every case in which a party appeals the denial of a motion to compel arbitration. As Coinbase argued in its Petition, “Because the Ninth, Second, and Fifth Circuits encompass many of this nation’s commercial centers, the real-world consequences of this split are particularly acute.” This case will provide welcomed clarity on whether the minority position of allowing dual-track proceedings is permissible under the Federal Arbitration Act.
This case is scheduled for argument during the Court’s October 2022-2023 term. Fenwick will continue to monitor developments in this case.