Today the Supreme Court held that when a party files an immediate appeal of a federal district court order denying arbitration, the district court must stay its proceedings relating to the merits (including discovery) during the appeal. The decision in Coinbase, Inc. v. Bielski will have a significant impact in federal courts in California and New York in particular, where the prior regime had given district courts wide discretion over whether to grant full or partial stays pending appeal or to deny stays altogether.

As we anticipated from attending the oral arguments, the Justices were closely divided on the issue. In an opinion for the Court written by Justice Kavanaugh, the Court held, by a vote of 5-4, that “the district court must stay its proceedings” pending the outcome of the appeal.

Congress authorized immediate appeals of orders denying arbitration when it enacted Section 16 of the Federal Arbitration Act. Prior to Coinbase, the courts of appeals were divided over whether stays pending appeal are automatic.

The majority of circuits had held that stays are automatic because further litigation on the merits in the district court eliminates the benefits of the claimed right to arbitrate that is the subject of the appeal. But Coinbase arose out of the Ninth Circuit, which, along with the Second and Fifth Circuits, had taken the minority view that stays are discretionary. The Supreme Court granted review to resolve this long-standing split. (We filed an amicus brief on behalf of the National Retail Federation in support of Coinbase at the merits stage.)

The Court sided with the majority view that a stay pending appeal is automatic. The Court reasoned that, because Section 16 of the FAA (the interlocutory appeal provision) doesn’t address stays, Congress intended courts to follow the background “divestiture” principle set forth in Griggs v. Provident Consumer Discount Co. (1982), under which a notice of appeal “divests the district court of its control over those aspects of the case involved in the appeal.” Accordingly, the Court explained, the “Griggs principle resolves this case.” “Because the question on appeal is whether the case belongs in arbitration or instead in the district court,” the Court continued, “the entire case is essentially ‘involved in the appeal.’”

The Court further noted that the “common practice” of staying district court proceedings adopted by the majority of courts of appeals “reflects common sense.” Allowing district court proceedings to go forward would “largely nullif[y]” Congress’s “decision in § 16(a) to afford a right to an interlocutory appeal.” The Court recognized that “many of the asserted benefits of arbitration (efficiency, less expense, less intrusive discovery, and the like) would be irretrievably lost—even if the court of appeals later concluded that the case actually had belonged in arbitration all along.” And the Court additionally noted the “especially pronounced” potential in class actions for the continuation of district court proceedings to “lead to what Judge Friendly called ‘blackmail settlements,'” even if defendants have strong arguments on appeal. For these reasons, the Court explained, “[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.”

The Court was also persuaded by the fact that when Congress does not want an automatic stay to accompany an interlocutory appeal, it “typically says so”—as it has done in numerous other statutes. The pattern of these other statutes thus “reflects and reinforces the Griggs rule” and bolsters the conclusion that “the background Griggs principle already requires an automatic stay of district court proceedings that relate to any aspect of the case involved in the appeal.”

Finally, the Court rejected several arguments advanced by Bielski in an effort “to overcome the Griggs principle.” For example, the Court rejected the argument that an automatic stay would encourage frivolous appeals, noting that courts already “possess robust tools to prevent unwarranted delay and deter frivolous interlocutory appeals.” The Court also didn’t buy the contention that allowing automatic stays would create a special, arbitration-favoring rule, explaining that the rule parallels other contexts in which an interlocutory appeal automatically stays further district court proceedings—such as qualified immunity and double jeopardy. And the Court did not think that, as Bielski argued, the ordinary four-factor test for discretionary stays would be sufficient to protect the parties’ interests in arbitration. The Court remarked that “experience shows” otherwise—an empirical point we detailed extensively in our amicus brief—but that in any event the Griggs principle requires an automatic stay even if a stay would also be warranted under the discretionary factors.     

Justice Jackson dissented, in an opinion joined by Justices Kagan and Sotomayor and in large part by Justice Thomas. (As we previously noted, Justices Jackson, Kagan, and Sotomayor were the most critical of Coinbase’s position at the oral arguments.) The dissent contended that Section 16 does not expressly authorize a stay and that the background Griggs principle operates more narrowly—it prevents the district court only from revisiting its order denying arbitration while that order is on appeal. The dissent would thus have sided with the minority of courts of appeals in concluding that stays pending appeals from denials of arbitration are up to the district judge’s discretion.

The Court’s opinion is of tremendous practical significance—especially to defendants who are seeking appellate review of denials of arbitration in the Second, Fifth, and Ninth Circuits. Coinbase overturns the practice in those circuits and entitles defendants to an automatic stay of district court proceedings pending an appeal from an order denying arbitration. At the same time, parties should be aware of the Court’s concluding remark that “we anticipate that the Ninth Circuit here, as we anticipate in §16(a) appeals more generally, will proceed with appropriate expedition when considering Coinbase’s interlocutory appeal from the denial of the motion to compel arbitration.” That language suggests that the courts of appeals and parties should avoid unreasonable delays in the resolution of such appeals.