Client Alert: SCOTUS Decision Mandates Automatic Stays Pending Arbitrability Appeals

Jul 13, 2023

On June 23, 2023, the United States Supreme Court resolved the circuit split regarding stays of litigation pending appeal of arbitration denials in favor of enforcing the longstanding principles that if parties ultimately are sent to arbitration, that is where the matter should proceed. The decision issued in Coinbase, Inc. v. Bielski means significant litigation cost savings for businesses and a shifting of litigation pressures which will undoubtedly have an impact on class action prosecution strategies.

In the underlying case, the plaintiff filed a putative class action against Coinbase alleging that the online currency platform failed to reimburse certain fraudulently taken funds to users’ accounts. Defendant moved to compel arbitration. The district court denied the motion and Defendant appealed to the 9th Circuit and sought to stay the litigation pending the interlocutory appeal. The motion to stay was denied. SCOTUS reversed.

The Supreme Court held that while the Federal Arbitration Act does not mandate the imposition of an automatic stay pending appeal, it does create the right to an immediate interlocutory appeal of district court decisions denying motions to compel arbitration. In so doing, “[s]ection 16(a) creates a rare statutory exception to the usual rule that parties may not appeal before final judgment.” Opinion at p.3. The Court succinctly concluded: “The sole question before this Court is whether a district court must stay its proceedings while the interlocutory appeal on arbitrability is ongoing. The answer is yes.” Ibid.

While most circuits follow this rule, the split has not been resolved with a bright-line rule. SCOTUS, in its concise 10-page opinion, addressed head-on both the legal and practical justifications for the stay mandate. The automatic stay provision of the FAA required pending arbitration, which now applies to appeals of arbitrability decisions, and the “potential for coercion” magnified in the face of “colossal liability” exposure in class actions were supporting factors cited by the Court. Further considerations, such as conservation of judicial resources pending appeal, avoiding duplication of efforts, saving costs and expenses for the parties, and guarding against “blackmail settlements,” were offered by the majority in support of its ruling.

What was uncertain in some circuits has now been made clear, and the most significant impact will be felt in the class action context. The business community can claim this one as a victory, and class action practitioners in places such as the 9th Circuit will have to adjust their strategy when it comes to an appeal of a motion to compel arbitration.

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Client Alert: SCOTUS Decision Mandates Automatic Stays Pending Arbitrability Appeals

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