The Supreme Court will hear argument this Tuesday March 21 in Coinbase, Inc. v. Bielski, in which the issue centers on appeals of district court rulings denying motions to compel arbitration.
The Federal Arbitration Act generally enforces arbitration agreements, and it does so not with the usual remedy for breach of contract, which is money damages, but with a stronger remedy—specific performance. The Federal Arbitration Act does this by instructing district courts to grant motions to stay litigation and compel arbitration of claims the parties agreed to arbitrate.
In further support of arbitration is the Federal Arbitration Act’s appeals structure. FAA § 16 makes immediately appealable district court orders denying motions to compel arbitration, but not orders granting them. So, if the district court rules for arbitration, the parties go to arbitration, instead of appealing the district court’s pro-arbitration ruling to the circuit court. But if the district court rules against arbitration, then the party seeking arbitration is entitled to an interlocutory appeal to ask the circuit court to reverse the district court’s anti-arbitration ruling, and thus to compel arbitration. So, the party seeking arbitration can get the dispute to arbitration by winning at either district or appellate court, but the party opposing arbitration has to win at both courts if the pro-arbitration side appeals.
All that is established by statute, while the question in this Supreme Court case, Coinbase, Inc. v. Bielski, is narrower. It’s a question about staying the district court pending appeal. If the district court rules against arbitration and the party seeking arbitration exercises its right to an interlocutory appeal, may the district court proceed on other issues in the case while that appeal about arbitration is pending; or is the district court automatically stayed with respect to the entire case pending appeal? That’s the question the Supreme Court has set for argument on March 21.
In this case, Coinbase, Inc. v. Bielski, the plaintiff Bielski sued Coinbase for violations of the Electronic Funds Transfer Act. Coinbase then moved to stay the litigation and compel arbitration pursuant to the arbitration clause in the Coinbase User Agreement that Bielski had signed. However, the district court denied Coinbase’s motion to compel arbitration because the district court held that the arbitration agreement was unconscionable.
Coinbase filed an interlocutory appeal to the Ninth Circuit requesting a stay of the district court proceedings pending that appeal, and Coinbase asked the district court to stay its proceedings pending the resolution of that appeal. The district court denied Coinbase’s motion for a stay pending appeal because, it said, Bielski “would suffer if forced to wait for a remedy” on Bielski’s underlying suit about the Funds Transfer Act.
The Ninth Circuit also refused Coinbase’s request for a stay of the district court pending appeal, so Coinbase petitioned the Supreme Court. Coinbase asks the Supreme Court to decide whether “a non-frivolous appeal of the denial of a motion to compel arbitration oust[s] a district court’s jurisdiction to proceed with litigation pending appeal.” Or as Bielski puts it, the question before the Supreme Court is whether “an interlocutory appeal of a denial of a motion to compel arbitration … require[s] an automatic stay of all district court proceedings pending appeal?”
The federal circuit courts have split on this question, with the Second and Fifth Circuits joining the Ninth. These three circuits hold that an appeal of the district court’s refusal to compel arbitration does not automatically stay the district court pending appeal.
But most circuits hold to the contrary. The Third, Fourth, Seventh, Tenth, Eleventh, and D.C. Circuits hold that appeal of a district court’s refusal to compel arbitration does divest the district court of jurisdiction pending appeal.
When we look at the two sides of this circuit split, we can see it arising in the 1990s in a pretty familiar way, which is the progressive or anti-arbitration position is first taken by the Ninth Circuit out on the Left Coast, while the conservative or pro-arbitration position is first taken by the Seventh Circuit in an opinion by Judge Frank Easterbrook—who by the way was my Civil Procedure professor at the University of Chicago.
Part of the context for this circuit split is the general rule in federal court that “[t]he filing of a notice of appeal . . . divests the district court of its control over those aspects of the case involved in the appeal.” That’s a quote from the Supreme Court’s 1982 decision in Griggs v. Provident Consumer Discount Co. So, in that Griggs framework, the question in this Coinbase case is whether appeal of a denied motion to compel arbitration divests the district court of the non-arbitration merits of the case (about the Funds Transfer Act) while the circuit court is deciding whether to affirm or reverse the district court’s refusal to compel arbitration.
sense, the alleged violation of the Funds Transfer Act is not involved in the
appeal because the appeal is just about whether to enforce the arbitration
agreement. But in another sense, any litigation of the Funds Transfer Act claim or any other
claim, even just taking a deposition or other discovery, would be the district
court exercising control over aspects of the case involved in the appeal—because
everything in litigation is involved in the appeal of whether the case
will be resolved by litigation or arbitration. For example, maybe arbitration
will have narrower discovery than litigation would, so an arbitrator would not
order a deposition that the district court would order.
The Ninth Circuit takes the first of those views. It said not everything involved in the case is involved in the appeal of refusing to compel arbitration, and the contrary rule urged by [defendants] would allow a defendant to stall a trial simply by bringing a frivolous motion to compel arbitration.” The Ninth Circuit said,
The system created by the Federal Arbitration Act allows the district court to evaluate the merits of [a motion for arbitration], and if, for instance, the court finds that the motion presents a substantial question, to stay the proceedings pending an appeal from its refusal to compel arbitration.
In other words, the Ninth Circuit says, whether to stay pending appeal is a proper subject for the exercise of discretion by the trial court.
In contrast, most circuit courts to have considered the issue hold that a nonfrivolous appeal from a district court order denying arbitration automatically divests the district court of jurisdiction of the case pending appeal. In other words, the interlocutory appeal stays litigation in district court until the Court of Appeals resolves the appeal.
This view traces back at least to Judge Easterbrook’s 1997 opinion, which says that denying such a stay would "largely defeat the point of the appeal." Which is to decide if the case will be litigated or arbitrated--before incurring the costs of starting the litigation or arbitration. As the Eleventh Circuit said in support of this view, whether the case will be litigated or arbitrated is a “threshold issue” that should be resolved first. Or as the Tenth Circuit said, also in support of this Easterbrook view, failing to grant a stay pending appeal would deny the defendant’s "legal entitlement to avoidance of litigation" if it turns out the defendant had that entitlement to arbitrate, which we won’t know until the circuit court rules.
So, we can see the issue in this Coinbase case as a policy question of which kind of errors should courts make. Should courts make plaintiffs wait to litigate until after an appeal that affirms the district court’s ruling that the plaintiff has a right to litigate rather than arbitrate? Or should courts make defendants litigate until an appeal reverses the district court’s erroneous ruling that the plaintiff has to litigate instead of arbitrate?
As to statutory text, Bielski’s brief in the Supreme Court points out that if Congress enacting FAA § 16 had wanted to require a stay pending appeal, it could have done so. It knew how to do so, because FAA § 3 expressly requires stays of litigation pending arbitration, so “Congress's silence regarding stays in Section 16 is deafening,” Bielski’s brief says.
In contrast, Coinbase’s brief says “in enacting this [FAA § 16] text, Congress legislated against the backdrop of the divestiture rule,” that Griggs rule I mentioned earlier, which provides that district courts are divested of authority to proceed with matters implicated by the appeal. Congress's creation of an immediate arbitrability appeal right ensured that district courts would be divested of authority to proceed to the merits while the appeal proceeds.” And Coinbase quotes Judge Easterbrook’s opinion for the Seventh Circuit, saying the “divestiture rule ‘is fundamental to a hierarchical judiciary.’ It ‘fosters judicial economy’ and guards against ‘confusion and inefficiency that would result if two courts’ purported to exercise jurisdiction over related matters simultaneously.”
Thanks to Shane Creason for excellent research assistance.
Greg Stohr of Bloomberg News discusses the crypto side of this case.
 9 U.S.C. §§ 3, 4.
 9 U.S.C. § 16(a)(1)(A) (B) (stating that “[a]n appeal may be taken from . . . an order . . . refusing a stay of any action under section 3 of this title” and an order “denying a petition under section 4 of this title to order arbitration to proceed.”); id. § 16(a)(1)(C) (stating that “[a]n appeal may be taken from . . . an order . . . denying an application under section 206 of this title to compel [international] arbitration”);
 9 U.S.C. § 16(b) (denying interlocutory appeals of “an interlocutory order . . . granting a stay of any action under section 3 [or] . . . directing arbitration to proceed under section 4 of this title.”)
 Bielski v. Coinbase, Inc., No. C 21-07478 WHA, 2022 WL 1062049, at *1 (N.D. Cal. Apr. 8, 2022).
 More specifically, the district court said the arbitration agreement’s delegation clause and “unilaterality” throughout the arbitration provisions permeated the whole with unconscionability. Id. at 6-7. Consequently, the court concluded that it could not sever the unconscionable terms and denied Coinbase’s motion. Id. at 7-8.
 Joint Petition for Writ of Certiorari, Coinbase, Inc., Petitioner, v. Abraham Bielski, Respondent; Coinbase, Inc., Petitioner, v. David Suski, et al., Respondents., 2022 WL 3107708 (U.S.), 8 (“district court recognized ‘that reasonable minds may differ over’ its refusal to compel arbitration, but it nonetheless decided that a stay was unwarranted because ‘Coinbase is a large company,’ while ‘Bielski is a single individual,’ and he ‘would suffer if forced to wait for a remedy.’”)
 Bielski v. Coinbase, Inc., No. 22-15566, 2022 WL 3095991, at *1 (9th Cir. July 11, 2022); See also Suski v. Coinbase, Inc., No. 22-15209, 2022 WL 3099846, at *1 (9th Cir. May 27, 2022).
 Joint Petition for Writ of Certiorari, Coinbase, Inc., Petitioner, v. Abraham Bielski, Respondent; Coinbase, Inc., Petitioner, v. David Suski, et al., Respondents., 2022 WL 3107708 (U.S.), cert. granted, 143 S. Ct. 521 (2022).
 Brief for Respondent Abraham Bielski. https://www.supremecourt.gov/DocketPDF/22/22-105/255161/20230221122108808_22-105%20bs.pdf
 459 U.S. 56, 58 (1982).
 Britton v. Co-op Banking Grp., 916 F.2d 1405, 1412 (9th Cir. 1990)
 Id. (citations omitted).
 Bradford-Scott Data Corp. v. Physician Comput. Network, Inc., 128 F.3d 504, 505(7th Cir. 1997).
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