How arbitration proceedings became stronger in 2023 in the U.S.
In the latest of a long line of U.S. Supreme Court decisions favoring arbitration, on June 23, 2023, the Supreme Court issued a narrow 5-4 decision in?Coinbase, Inc. v. Bielski, 2023 U.S. LEXIS 2636, at *1 (U.S. June 23, 2023), holding that?trial court proceedings must be stayed during the pendency of an arbitration denial appeal.
With this decision, the Supreme Court resolved a years-long circuit split over a 1988 amendment to the Federal Arbitration Act. The amendment allows interlocutory appeals of trial court decisions denying motions to compel arbitration, but Congress did not address whether the underlying litigation can proceed during the appeal. Until now, most circuit courts had held that an appeal of an interlocutory order denying a motion to compel arbitration automatically stayed the trial court proceedings, while the Second, Fifth, and Ninth Circuits, however, did not stay the trial court proceedings. In?Coinbase, the Supreme Court agreed with the majority of circuits that had decided this issue, concluding that the underlying case must be stayed until the appellate court determines whether the case belongs in arbitration.
Specifically, the appeal to the Supreme Court came from the Ninth Circuit’s decision, a minority circuit on this issue, declining a stay. There, the appellant challenged the district court’s denial of its motion to compel arbitration under section 16 of the Federal Arbitration Act (FAA). 9 U.S.C. section 16(a)(1). Section 16(a) does not say whether district court proceedings must be stayed pending resolution of an interlocutory appeal. In the Supreme Court opinion, Justice Kavanaugh explained that Congress enacted the provision against a clear background principle prescribed by the Supreme Court’s precedents: An appeal, including an interlocutory appeal, “divests the district court of its control over those aspects of the case involved in the appeal,” citing?Griggs v. Provident Consumer Discount Co., 459 U. S. 56, 58. The Supreme Court reasoned that “because 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 Griggs dictates that the district court stay its proceedings while the interlocutory appeal on arbitrability is ongoing.” Therefore, according to the majority, an appeal on the question of arbitration versus trial must divest the district court of its ability to control the case completely.?This approach, wrote Justice Kavanaugh, “reflects common sense,” as proceeding with an entire trial would negate the benefits that parties seek to gain by agreeing to arbitration in the first place. The majority continued that “[a] right to interlocutory appeal of the arbitrability issue without an automatic stay of the district court proceedings is therefore like a lock without a key, a bat without a ball, a computer without a keyboard – in other words, not especially sensible.”
Kavanaugh’s opinion for the five justices in the majority noted that many of the purported benefits of arbitration – notably, speed, efficiency and cost savings – would otherwise be “irretrievably lost.” Common sense (and Supreme Court precedent from 1982’s Griggs),?the court said, dictates that the right to appeal arbitrability includes a right to pause the underlying case while that threshold question is under appellate consideration.
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The majority also suggested that allowing plaintiffs to continue litigating during the arbitrability appeal might force defendants to capitulate to “blackmail” settlements even if the trial court wrongly refused to compel arbitration. That assertion echoed amicus briefs by business-friendly groups such as the U.S. Chamber of Commerce and the National Retail Federation, which argued that the Ninth Circuit's contrary view undermined the Federal Arbitration Act.
You can read the Supreme Court’s decision here: