Arbitration is in Supreme Court news again with another case favoring arbitration. Wait for appeal of order denying arbitration

Arbitration is supposed to be quicker and cheaper than litigation. It accomplishes this in large part by avoiding court proceedings. But this is all thrown off when one must first go to court to enforce an arbitration provision. And things are further thrown off if the court denies a motion to compel arbitration and goes ahead with the case.

But pursuing a weak claim to a right to arbitrate can be a stalling tactic by a defendant and make things more expensive for plaintiffs. What's a court to do?

Stays of cases after orders denying arbitration

Many courts have held that a prompt appeal from an order denying a motion to compel arbitration stays the case at the trial court. Others have not, leaving the issue to the discretion of the trial court to weigh the merit of the claim that the case must be arbitrated against the possible harm to the opposing party of delaying a decision on the merits. Which brings us to Coinbase, Inc. v. Bielski, No. 22–105 (June 23, 2023).

Where’s our money?

Mr. Bielski brought a class action against Coinbase, an online payment system. He claimed it failed to replace funds fraudulently taken from user’s accounts. His user agreement with Coinbase had an arbitration clause, but the district court denied Coinbase’s motion to compel arbitration. It also denied the motion to stay the case pending Coinbase’s interlocutory appeal of the denial of its motion. And the Ninth Circuit refused to stay the case pending appeal based on its precedent that an appeal of an order denying a motion to compel arbitration does not stay the case in the trial court.

Disagreement among the Courts

As the Supreme Court noted, the majority of federal appeals courts have held that an appeal of an order denying a motion to compel does stay the case at the trial court. It took the case to “resolve the disagreement among the Courts of Appeal.”

 “Common Practice” Prevails

 The Court noted that it is common practice to stay proceedings in the trial court while a party appeals denial of a motion to compel arbitration. Section 16(a) of the Federal Arbitration Act, it observed, allows an interlocutory appeal challenging denial of the motion. It doesn’t say such an appeal requires a trial court to stay proceedings pending the appeal.  But the principle that an appeal deprives the trial court of jurisdiction requires a stay, said the Court.  Otherwise, the right to an interlocutory appeal would be “largely nullified.” If the district court just moves ahead, many of the asserted benefits of arbitration – including efficiency, less expense, and less intrusive discovery — would be lost. And, the Court said, the risk of “blackmail settlements,” which are already significant in class actions, would be enhanced. Defendants would be subject to district court proceedings and expense they had “contracted to avoid through arbitration.” 

And allowing a case to proceed in court when a successful appeal could later render the judicial resources devoted to the case a waste of time. Absent a stay, the parties and courts could litigate a case to the end, only to be told later by an appeals court that the case must be done over in arbitration.  

The majority of the Court was not persuaded that an automatic stay on appeal would lead to frivolous appeals and delay. Among other things, there are procedures to weed out frivolous appeals, and sanctions may be imposed for pursuing such appeals.  

But wait a minute . . .

Four justices dissented. The majority of the dissenters noted that trial courts normally have discretion whether to stay a case pending an appeal. This allows them to weigh all relevant interests, thus assuring procedural fairness. An automatic stay in all cases, they said, “perpetually favor[s] one class of litigants: defendants seeking arbitration.”

And they protested that the new ruling “comes out of nowhere.” It is found in neither a statute nor court precedent.  And, extended to its logical extreme, the ruling would require stays in all sorts of situations, “upend[ing] federal litigation as we know it.” It would allow defendants to stop a case in its track with interlocutory appeals.  For example, faced with a motion for a preliminary injunction, defendants could pursue a challenge to the trial court’s jurisdiction such as venue, or a substantive element of the claim to bring the proceedings at the trial court to a halt and avoid the injunction.

In short, the “windfall that the Court gives to defendants seeking arbitration, preferencing their interests over all others, is entirely unwarranted.”

 The bigger picture

 However strongly the dissenters may feel about it — and they seem to feel very strongly about it — the mandatory stay rule will now be in place.  

In the recent past, the Supreme Court has often ruled in favor of arbitration as arbitration creeps from its traditional role as a method to resolve commercial disputes to being preferred by corporations to address employment and consumer issues. Many believe this gives powerful corporations a path to tilt the playing field in their favor to avoid class actions, juries, and other attributes of court proceedings they view as unfavorable to them.

 The spirited disagreement among the justices reflects the broader disagreement about whether expanding role of arbitration provides an unfair advantage to corporations against consumers and employees.