Introduction: Must District Courts Grant a Stay Pending Appeal of an Order Denying a Motion to Compel?
Section 16(a) of the Federal Arbitration Act authorizes interlocutory appeals of orders denying motions to compel arbitration. 9 U.S.C. § 16(a)(1)(B) & (C). This is a “rare statutory exception to the usual [federal] rule that parties may not appeal before final judgment.” Coinbase, Inc. v. Bielski, 599 U.S. ___, No. 22-105, slip op. at 3 (June 23, 2023). It authorizes interlocutory “appeals of orders denying—but not of orders granting—motions to compel arbitration.” Slip op. at 3 (emphasis in original).
Where such an order is made in a pending litigation on the merits, and an interlocutory appeal is taken, should the trial court litigation on the merits be stayed pending appeal? On June 23, 2023, in Coinbase, the U.S. Supreme Court (“SCOTUS”) ruled 5-4 that the answer was yes: a “district court must stay its pre-trial and trial proceedings while the interlocutory appeal is ongoing.” Slip op. at 1.
Discussion
To Stay or Not to Stay: SCOTUS says the Griggs Principle Controls
The Court initially noted the text of Section 16 says nothing about whether a stay of litigation pending an appeal of a denial of a motion to compel is required. See slip op. at 3. That said, “Congress enacted § 16(a) against a clear background principle prescribed by” Court “precedents[,]” which the Court referred to as the “Griggs principle[:]” “[a]n appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal.’” Slip op. at 3 (quoting Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)).
“The Griggs principle,” said the Court, “resolves this case.” Where, as here, “the question on appeal is whether the case belongs in arbitration or instead in the district court, the entire case [is] essentially ‘involved in the appeal.’” Slip op. at 3 (quoting Griggs, 459 U.S. at 58). Quoting with approval Circuit Judge Frank H. Easterbrook’s opinion in Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F.3d 504, 506 (7th Cir. 1997), “when a party appeals the denial of a motion to compel arbitration, whether ‘the litigation may go forward in the district court is precisely what the court of appeals must decide.’” Slip op. at 3-4 (quoting Bradford-Scott, 128 F.3d at 506). Put differently, whether the case should proceed in the district court (rather than in arbitration) is the “mirror image’” of the question on appeal: whether the case should proceed in arbitration (rather than in the district court). Slip op. at 4 (quoting Bradford-Scott, 128 F.3d at 505).
The Court quoted an earlier Judge Easterbrook opinion to underscore its conclusion. “Here, as elsewhere,” said the Court, ‘it ‘makes no sense for trial to go forward while the court of appeals cogitates on whether there should be one.’” Slip op. at 4 (quoting Apostol v. Gallion, 870 F.2d 1335, 1338 (7th Cir. 1989)).
Other Authority Supports Granting an Automatic Stay
The Court explained that its conclusion was further supported by circuit courts of appeals decisions and leading treatises. “Most courts of appeals to address the question in the § 16(a) context have reached that same conclusion,” explained the Court, slip op. at 4 (citations omitted), and the Wright & Miller and Moore treatises have also concluded that “a district court should stay its proceedings while the interlocutory appeal on arbitrability is ongoing.” Slip op. at 4.
Courts of appeal that have considered the issue in the “analogous contexts” of interlocutory appeals of qualified immunity and double jeopardy determinations require district courts to stay merits litigation pending appeal of those decisions. Slip op. at 5 (citations omitted). And “courts have held that the Griggs principle applies to those aspects of the case involved in a certified interlocutory appeal under 28 U.S.C. § 1292(b).” Slip op. at 5 (citations omitted).
Stay Pending an Interlocutory Appeal: Common Practice Reflects Common Sense
The Court explained that the “common practice” of district courts in Section 16(a) cases was to stay litigation of the merits “while the interlocutory appeal on arbitrability is ongoing.” Slip op. at 5. The “common practice reflects common sense[,]” said the Court, because “Congress’s decision in § 16(a) to afford a right to an interlocutory appeal would be largely nullified[]” if there were no “automatic stay[.]” Slip op. at 5.
That is because Section 16(a)’s authorization of interlocutory appeals of denials of motions to compel reflects pro-arbitration sentiment. It would therefore be anomalous to construe Section 16(a)’s silence on a stay pending an appeal in a way that would potentially undermine or even eliminate the benefits that arbitration is supposed to provide vis-à-vis litigation.
Arbitration’s “Asserted Benefits” would be Lost Absent an Automatic Stay
The Court observed that, if litigation could proceed apace while arbitrability was appealed, “then 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.” Slip op. at 6.
Without an Automatic Stay Settlement Dynamics would be Skewed
That would also subvert settlement dynamics in a way the parties did not intend when they agreed to arbitration. For without a stay, “parties could also be forced to settle to avoid the district court proceedings (including discovery and trial) that they contracted to avoid through arbitration.” Slip op. at 6. And, especially the class-action context the “potential for coercion is. . . pronounced…where the possibility of colossal liability can lead to what Judge Friendly called ‘blackmail settlements.’” Slip op. at 6 (citation omitted).
Once again quoting Judge Easterbrook, the Court said not staying district court proceedings “‘largely defeats the point of the appeal.’” Slip op. at 6 (quoting Bradford-Scott, 128 F.3d at 505). Without a concomitant right to a stay, an interlocutory appeal right “is therefore like a lock without a key, a bat without a ball, a computer without a keyboard—in other words, not especially sensible.” Slip op. at 6.
Wasted Resources would Result Absent a Stay
From the standpoint of the judiciary, too, not having a stay creates the risk that judicial resources will be squandered. There is “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.” Slip op. at 6. That possibility is the “‘worse possible outcome’. . . : litigating a dispute in the district court only for the court of appeals to ‘reverse and order the dispute arbitrated.’” Slip op. at 6 (quoting Bradford-Scott, 128 F.3d at 506).
Congress’s Silence on Interlocutory Appeal Stays “Reflects and Reinforces the Griggs Rule”
Finally, the Court explained that “Congress’s longstanding practice both reflects and reinforces the Griggs rule.” Slip op. at 6. When Congress authorizes an interlocutory appeal— that is, an exception to the general rule that appeals may be taken from final judgments only—and is silent on whether a stay pending appeal is required, then “[a]t least absent contrary indications, 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.” Slip op. at 7. If Congress provides for an interlocutory appeal but does not want there to be a corresponding automatic stay pending that appeal, then it “typically says so.” Slip op. at 7. Congress has, since 1891, when the current courts of appeals system was created, “enacted multiple statutory ‘non stay’ provisions,” the Court said, including one enacted one day before Section 16(a) was enacted. Slip op. at 7 & n.6 (citations omitted).
Griggs requires a stay of district court proceedings while an interlocutory appeal on arbitrability is pending. Slip op. at 7.
SCOTUS Rejects Bielski’s Five Counterarguments
In Section III of the opinion, the Court rejected the following five arguments, which Bielski advanced in opposition to Coinbase’s SCOTUS appeal:
- An automatic stay encourages frivolous appeals, slip op. at 8;
- Congress would not have included explicit stay requirements in FAA Section 3 (providing for stay of litigation pending arbitration) and 28 U.S.C. 1292(d)(4) (concerning stay of district court proceedings during interlocutory appeal to the U.S. Court of Appeals for the Federal Circuit of grant or denial of motion to transfer case to Federal Court of Claims), slip op. at 8-9;
- Requiring an automatic stay pending appeal “would create a special, arbitration preferring procedural rule[,] slip op. at 9;”
- An automatic stay is not needed “because the ordinary discretionary stay factors would adequately protect parties’ rights to an interlocutory appellate determination of arbitrability[,]” slip op. at 9-10; and
- Arbitrability issues before the court of appeals on an interlocutory appeal are “‘severable from the merits of the underlying disputes.’” (Slip op. at 10 (quoting Moses H. Cone Memorial Hospital v. Mercury Constr. Corp., 460 U.S. 1, 21 (1983)).
These are discussed on pages 8-10 of the opinion, and, with one exception, we refer the reader back to the opinion to learn more about the reasons the Court rejected these arguments.
The exception is the third argument—that the Court has allegedly imposed “a special, arbitration-preferring procedural rule.” Slip op. at 9. While the opinion of the court does not cite Morgan v. Sundance, Inc., 142 S. Ct. 1708, 1713-14 (2022), it is from this recent (2021 Term) case which the argument was derived. In Morgan, 142 S. Ct. 1708, 1713-14 (2022), SCOTUS said that the federal policy in favor of arbitration did “not authorize federal courts to invent special, arbitration-preferring procedural rules.” 142 S. Ct. at 1713. Put differently, the federal policy in favor of arbitration requires courts to enforce arbitration agreements like all other contracts but does not permit courts to “devise novel rules to favor arbitration over litigation.” 142 S. Ct. at 1713-14. More on Morgan here.
The Court did not find Bielski’s “arbitration-preferring procedural rule” argument persuasive, and rejected it along with Bielski’s other arguments. Noting that “Bielski’s proposed approach would disfavor arbitration[,]” the Court concluded that it was simply subjecting arbitration agreements to the same rule that would apply in other contexts where Congress authorizes interlocutory appeals, including in the “analogous contexts” of double jeopardy and qualified immunity. Slip op. at 9 (emphasis in original). While Bielski further argued that no such right of a stay of the merits obtains in cases involving other types of forum selection clauses, the Court explained that “unlike § 16(a) arbitrability appeals, Congress has not created a right to interlocutory appeal for cases involving forum selection clauses[,]” and accordingly “a stay in the forum selection context could be required only in those cases where there is a certified § 1292(b) interlocutory appeal of the forum selection issue.” Slip op. at 9.
The Dissent: District Courts or Courts of Appeals have the Discretion to Grant or Deny a Stay
Coinbase was a 5-4 decision—Associate Justice Brett M. Kavanaugh wrote the majority opinion, which was joined by Chief Justice John G. Roberts Jr., Associate Justice Samuel A. Alito Jr., Justice Neil M. Gorsuch, and Associate Justice Amy V. Coney Barrett. The dissent was written by Associate Justice Ketanji O. Brown Jackson, and was joined in by Associate Justice Clarence Thomas, Associate Justice Sonia M. Sotomayor, and Associate Justice Elena Kagan.
An extensive discussion of the dissent is beyond the scope of this post and we therefore commend it to readers to explore by themselves. Two points, however, are worthy of brief comment.
The Dissent’s Legal Argument is Stronger
We think the dissent has the better argument from a legal standpoint. The essential dispute in Coinbase was whether the Griggs principle should control or whether the stay determination should be made (in the first instance) by the district court based on various equitable factors, including probability of success. The dissent thought that the case-by-case approach—which was, prior to Coinbase, the law in the United States Court of Appeals for the Second Circuit, see Motorola Credit Corp. v. Uzan, 388 F.3d 39, 54 (2d Cir. 2004), overruled, Coinbase, 599 U.S. at ____; slip op. at 1 & 10, as well as the law in the Fifth and Ninth Circuits, see Dissent, slip op. at 13 & n.4 (citing cases)—was, and should be, the default rule to determine whether a stay pending appeal is appropriate.
The problem with sole reliance on the Griggs rule is that it is principally designed to prevent the district court from exercising control over an order or judgment that is properly before the court of appeals. Dissent, slip op. at 8. We share the dissent’s concern that Coinbase interprets Griggs too broadly.
As we’ve seen, Griggs “‘divests the district court of its control over those aspects of the case involved in the appeal.’” Griggs, 459 U.S. at 58. But it does not divest the district court of its control over those aspects of the case not involved in the appeal. As the Second Circuit said in Motorola, “further district court proceedings in a case are not ‘involved in’ the appeal of an order refusing arbitration, and. . . a district court therefore has jurisdiction to proceed with a case absent a stay from [the appellate] [c]ourt.” 388 F.3d at 54.
The crux of the difference between the majority’s and the dissent’s reasoning lies in what issues are “involved” in an interlocutory appeal of an order denying a motion to compel arbitration. Central to the denials of such motions is a determination that the matters that were the subject of the motion are not arbitrable.
The issues “involved” in an appeal denying a motion to compel are therefore ordinarily questions of arbitrability, that is, questions concerning the existence, validity, enforceability, and scope of the parties’ arbitration agreement. (See, e.g., here.) But as the Court’s precedents acknowledge, arbitrability questions are generally different—and distinguishable—from questions about the merits. See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995) (distinguishing questions of arbitrability from question concerning merits); Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 527, 529-30 (2019) (same); AT&T Technologies, Inc. v. Communication Workers of America, 475 U.S. 643, 649-52 (1986) (same).
True, in some cases there may be overlaps. Suppose A sues B for a declaratory judgment establishing that it did not enter into a contract claimed by B. The alleged contract contains an arbitration provision, and B moves to compel arbitration. There are other claims in the lawsuit involving other parties and at least some of those claims assume the existence of a contract between A and B. The Court denies the motion to compel arbitration, finding that no contract was entered, and, in addition, grants summary judgment for A on the merits on the A versus B claim for declaratory judgment.
In that situation there is complete overlap because the question of arbitrability is the same presented on the merits: did A and B enter the alleged contract? Because certain of the other claims were factually predicated on the existence of a contract between A and B, the subject matter of those claims would arguably be involved in the interlocutory, particularly if they would turn on the outcome of the appeal, and (even pre-Coinbase), a stay of appeal under Griggs would be warranted.
Apart from situations like that described above, disputes about arbitrability generally do not overlap with merits issues. Suppose A and B have entered into contract 1 that contains a narrow arbitration clause and a dispute arises between about whether a subsequently entered-into agreement, contract 2—which does not contain an arbitration provision—modifies in some way non-arbitration-related obligations of contract 1. Suppose A sues B, contending that B is liable to A under contract 1, which A contends was modified by contract 2. B moves to compel arbitration, but the court denies the motion, holding that the dispute does not fall within the scope of contract 1’s narrow arbitration agreement. B notices an interlocutory appeal.
In this scenario, the merits and arbitrability issues are not interdependent: the outcome of one does not affect the outcome of the other. The arbitrability issue concerns merely the scope of the arbitration provision in contract 1 and resolution of that issue determines only whether the dispute should be arbitrted. The merits issue—whether contract 2 materially modifies contract 1—has no bearing on whether that issue should be decided by a court or an arbitrator.
Under these circumstances the merits are not “involved” in the interlocutory appeal within the meaning of the Griggs. The result under Griggs should, in our opinion, be that the issues on the merits may go forward in the district court pending resolution of the interlocutory appeal, unless the district court or the court of appeals authorizes a discretionary stay of appeal. Such a discretionary stay pending appeal would certainly be appropriate if the probably of success on appeal was reasonably high.
Under Coinbase, however, the merits are deemed “involved” in the interlocutory appeal for the sole reason that the merits of the case will be decided by arbitration in the event the interlocutory appeal is successful. Certainly, if an appeal is ultimately successful, the automatic stay authorized by Coinbase will achieve the laudatory purpose of preventing duplicative litigation of the merits (once in court and once in arbitration).
But just how often is an appeal—even an appeal of a denial of a motion to compel arbitration—expected to be successful? From a broad-brush standpoint—i.e., taking into account federal civil appeals in general, and without having conducted statistical research, the answer is not very often—a rule of thumb answer might be somewhere on the order of one out of ten. Perhaps those odds might be slightly better for all civil appeals of denials of motions to compel arbitration, but one would not expect them to be significantly better. A much more meaningful assessment of the odds of probable success on appeal can be made in individual cases by district and appellate courts.
All this suggests that the Coinbase dissent’s conclusion—that the propriety of staying district court proceedings pending anppeal should be done on a case-by-case basis—is most closely aligned with Court precedent.
The Dissenting Justices were from Opposite Ends of the Political Spectrum
The other point about the dissent is that it was written by Justice Brown-Jackson, a more liberal jurist, but at the same time, Justice Thomas, the Court’s leading conservative jurist, joined all but Part I of the opinion. While the split between the majority and the dissent might, to at least some extent, have been driven by ideological considerations, Justice Thomas joining in all but one part of the decision suggests the dissent might have been motivated at least as much or more by nonpolitical, legal considerations.
Some More (Video) Commentary on Coinbase. . .
We could go on and on about the various practical and legal issues that may arise out of Coinbase, but instead we’ll refer to you a July 3, 2023, video interview that the International Institute for Conflict Prevention and Resolution (“CPR”) conducted by arbitrator, former trial judge, and fellow arbitration-law practitioner, Richard D. Faulkner; Professor Angela Downes, Assistant Director of Experiential Education and Professor of Practice Law at the University of North Texas-Dallas College of Law; and the author. The interview—which features our good friends and colleagues Angela and Rick, was conducted by our good friend and colleague Russ Bleemer, Editor of CPR’s newsletter, Alternatives to the High Cost of Litigation (CPR’s international ADR newsletter published by John Wiley & Sons, Inc.)—explores the implications of Coinbase, which are many.
You can view the interview here. Russ Bleemer’s and Cenadra Gopala-Foster’s June 23, 2023, CPR Speaks excellent article on Coinbase can be found here.
Contacting the Author
If you have any questions about this article, arbitration, arbitration-law, arbitration-related litigation, or the services that The Loree Law Firm offers, then please contact the author, Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. has more than 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation. He is licensed to practice law in New York and before various federal district courts and circuit courts of appeals.
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Tags: Bielski, Bleemer, BMK, Brown-Jackson, Coinbase, Denial Motion to Compel, Downes, Easterbrook, Faulkner, Griggs, Interlocutory Appeal, Kavanaugh, KBJ, Loree, SCOTUS, Section 16(a), stay, Stay Pending Appeal, Thomas, U.S. Supreme Court
