Earlier today, the Supreme Court issued its decision in Coinbase, Inc. v. Bielski, No. 22-105 (U.S. June 23, 2023) (click here for a copy of the decision). If a district court denies a motion to compel arbitration, and then the party desiring arbitration files an interlocutory appeal, must the district court stay its proceedings while the appeal is ongoing? In a 5-4 decision, Justice Kavanaugh writing for the majority said yes, the district court must stay its proceedings. The majority’s holding favors and protects arbitration.
How the majority reached its conclusion is interesting. In the last few years, the Court has been using a more textual approach when resolving FAA cases compared to the last several decades. Here, the majority begins its analysis by stating that the FAA’s text does not address whether lower court proceedings must be stayed. After finding silence in the statute, the majority relies on a background principle from prior precedent: in general, an appeal divests lower courts of control over those issues on appeal. In this situation involving arbitration, the majority reasons that the entire case is in effect on appeal – whether the litigation may continue at all in the lower court is exactly what the appellate court is deciding. The majority also relies on some policy concerns: if the lower court proceeding is not automatically stayed, if litigation continues while the appeal is pending, the benefits of arbitration (like less intrusive discovery, efficiency, less expenses) can be irreparably lost.
In a strong dissent, Justice Jackson argued that an automatic, mandatory stay should not apply. Instead, lower court judges who are closest to the case should have discretion, on a case by case basis, whether to grant a stay. Using a textual argument, Justice Jackson pointed out that the FAA does not expressly grant an automatic stay in this context of appeals in section 16, but Congress instead included a stay provision in a different section of the FAA, in section 3. This difference should be interpreted as intentional according to Justice Jackson’s dissent.
Justice Jackson also compared the majority’s ruling to the classic children’s story, “If You Give A Mouse a Cookie,” where a child engages in a series of humorous, flawed, cause-and-effect arguments. Citing the children’s book, Justice Jackson summarized the majority’s flawed analysis as follows: “[T]he majority’s analysis comes down to this: Because the pro-arbitration party gets an interlocutory appeal, it should also get an automatic stay.” Justice Jackson explained these two concepts are not necessarily connected, and one does not flow from the other. An interlocutory appeal is a valuable right on its own; parties in the past exercised this appellate right in connection with arbitrability matters even without the guarantee of an automatic stay in the lower courts. Congress can give one (the interlocutory appeal) without the other (the automatic stay).
As mentioned above, the majority’s ruling is a pro-arbitration ruling. The ruling could also lead to more appeals in an attempt to freeze litigation to gain leverage in settlement discussions, and as pointed out by Justice Jackson, “leaving plaintiffs to suffer harm, lose evidence, and bleed dry their patience and funding in the meantime.” The case also involves a class action, and this context of a class action influenced the majority’s decision. A majority of the Court tends to dislike class actions, and the majority’s ruling in effect stops a class action from proceeding in court while an interlocutory appeal on arbitrability is pending. Disagreements about the use of arbitration in the US can sometimes boil down to differing beliefs about the value of collective action; some parties may favor arbitration as a tool to reduce the threat of class action liability.