Last Friday, the U.S. Supreme Court agreed to review whether an appeal of the denial of a motion to compel arbitration automatically stays proceedings in the lower court pending the outcome of the appeal, or whether the lower court has discretion to grant or deny a stay. The decision will resolve a split between the Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits, which hold that a district court may not proceed with litigation pending appeal, and the Second, Fifth, and Ninth Circuits, which hold that a stay is subject to the lower court’s discretion.
In the cases under review, cryptocurrency investors filed separate putative class actions against Coinbase in the Northern District of California alleging violations of California consumer protection laws and federal regulations. In each case, the district court denied a motion to compel arbitration filed by Coinbase, which then appealed to the Ninth Circuit and asked the district court to stay further district court proceedings pending appeal. In seeking a stay, Coinbase relied upon Section 16 of the Federal Arbitration Act (FAA), which provides that when a district court denies a motion to compel arbitration, the moving party may file an immediate interlocutory appeal, and on Griggs v. Provident Disc. Co., in which the Supreme Court ruled that an appeal “divests the district court of its control over those aspects of the case involved in the appeal.”
Nevertheless, the district court in each case refused to issue a stay. In one case, the court denied a stay because “Coinbase is a large company,” while “[plaintiff] is a single individual” and “would suffer if forced to wait for a remedy.” In the other case, a stay was denied because there was another corporate defendant in the case which was not subject to arbitration. Both courts relied upon earlier Ninth Circuit precedent which, notwithstanding Griggs, held that a district court’s order denying a motion to compel arbitration does not automatically result in a mandatory stay of proceedings pending appeal, and that a stay pending appeal is a matter of judicial discretion, not of right. In each case Coinbase renewed its stay motion with the Ninth Circuit, which summarily denied a stay. Coinbase then filed a joint petition for a writ of certiorari.
The questions raised in Coinbase’s petition are exceptionally important in federal court practice since, as Coinbase argues, they “affect every case in which a party appeals from the denial of a motion to compel arbitration.” Companies employ arbitration agreements to promote efficient and cost effective solutions when disputes arise with their customers. However, under the Ninth Circuit’s approach, they may be forced to litigate massively expensive cases, including putative class actions, while attempting to appeal the threshold issue of arbitrability, which as Coinbase argues undermines fundamental FAA policies.
Depending on when the parties’ briefing is completed and oral argument is scheduled, the Supreme Court could issue a decision by the end of June 2023. We will also be looking to see whether the Court’s decision affects state court practice since many if not most states have their own statutes or decisional law concerning appeals from the denial of a motion to compel arbitration and the stay of trial court proceedings pending appeal.