Supreme Court requires that arbitrability appeals trigger automatic stay in the district court

Arbitration is the name of the game these days. If you sign an arbitration agreement, either as a new employee or as a consumer, and then something goes wrong and you need to assert your rights, in all likelihood, your case will proceed to arbitration, which is a private justice system with limited public oversight. There are exceptions to this rule, particularly in sexual harassment cases, but for the most part, courts will uphold nearly all arbitration agreements. The question is what happens when you try to sue in court and the defendant wants to enforce the arbitration agreement. Is the case stayed in court, or can the case proceed in court until federal judges decide whether to enforce the arbitration agreement?

The case is Coinbase, Inc. v. Bielski, issued by the Supreme Court on June 23. Coinbase is an online currency platform. The class-action plaintiffs claim that Coinbase did not replace funds that were fraudulently taken from their accounts. Coinbase asked the district court to send the case to arbitration, as per the arbitration agreement that Coinbase users signed when they started with the platform. Whether users knew they were signing away their rights is of no moment in these cases. If you signed it, you are bound by it. 

In this case, the district court denied the motion to compel arbitration, and Coinbase appealed to the Ninth Circuit Court of Appeals. Coinbase also asked the district court to stay all proceedings in the case until the Ninth Circuit resolved the appeal. The district court denied that motion and the Ninth Circuit also denied the stay request. That's how this case reaches the Supreme Court.

Writing for a 6-3 majority, Justice Kavanaugh says that the Federal Arbitration Act requires that all proceedings in federal court be stayed while the interlocutory appeal on arbitrability is pending. While the FAA does not explicitly address this issue, a longstanding principle of American appellate procedure holds that "[a]n appeal, including an interlocutory appeal, “divests the district court of its control over those aspects of the case involved in the appeal.”  That's the rule in Griggs v. Provident Consumer Discount Co., 459 U. S. 56, 58 (1982). Griggs is enough to settle this issue, the Supreme Court says. 

The Court is satisfied that this rule makes sense in the arbitration context. Kavanaugh writes:

Continuation of proceedings in the district court “largely defeats the point of the appeal.” 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. From the Judiciary’s institutional perspective, moreover, allowing a case to proceed simultaneously in the district court and the court of appeals creates the possibility that the district court will waste scarce judicial resources— which could be devoted to other pressing criminal or civil matters—on  a  dispute  that  will  ultimately  head  to arbitration in any event.  That scenario represents the “worst possible outcome” for parties and the courts: litigating a dispute in the district court only for the court of appeals to “reverse and order the dispute arbitrated.”

This holding therefore reverses Second Circuit authority on this issue. In Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2d Cir. 2004), the Second Circuit held the trial court has discretion whether to stay all proceedings in this context.

In dissent, Justice Jackson says this mandatory-general-stay rule in arbitration cases "comes out of nowhere, as the FAA does not authorize it, and that the better option is for the trial judge to exercise her discretion in deciding whether to stay all proceedings while the arbitration appeal is pending. She notes that "[a] court’s discretion 'to grant a stay pending review' is 'firmly imbedded in our judicial system, consonant with the historic procedures of federal appellate courts.'”