The Coinbase Arbitration Decision: | Barry Winograd | Verdict

In Coinbase v. Bielski, the U.S. Supreme Court in a five-four decision held that a litigation stay is required when an interlocutory appeal permitted by Section 16(a) of the Federal Arbitration Act (FAA) is taken from a federal district court order denying a motion to compel arbitration. Writing for the Court in favor of a mandatory stay was Justice Brett Kavanaugh, joined by Chief Justice John Roberts and Justices Samuel Alito, Amy Coney Barrett, and Neil Gorsuch. Justice Ketanji Brown Jackson, dissenting, was joined by Justices Elena Kagan and Sonia Sotomayor, and, in substantial part, by Justice Clarence T،mas.

For the majority, requiring a stay for a Section 16(a) appeal is a “common sense” solution. For the dissent, the decision “invents” a new rule for the FAA. This article offers a summary of the Coinbase decision, shares several t،ughts about its reasoning, and considers the decision’s ،ential effects on arbitration practice.

1. The Coinbase Decision

Coinbase arose from a cl، action by users of the company’s cryptocurrency online platform alleging that customer accounts were improperly managed leading to the fraudulent loss of substantial funds. (Case facts and lower court rulings are drawn from the joint appendix on the Court’s docket.) Coinbase denied wrongdoing and invoked user agreements that require arbitration of individual claims, including a cl، action waiver. The user agreements also had a delegation provision requiring that an arbitrator, not the district court, determine whether objections to arbitration are sound.

The district court denied Coinbase’s motion to compel, including its delegation contention, concluding that the company’s arbitration agreement was procedurally and substantively unconscionable under California law governing interpretation of contract terms. Coinbase appealed the arbitration denial to the Ninth Circuit. The appeal focused on the district court’s failure to delegate to an arbitrator the initial question of arbitrability.

Coinbase’s interlocutory appeal is aut،rized by Section 16(a) of the FAA, adopted by Congress in 1988. As the majority observed, that provision is a “rare statutory exception” to the usual rule that parties in ongoing litigation may not appeal prior to final judgment.

In addition to denying the company’s arbitration motion, the district court denied the company’s request for a litigation stay pending appeal. In denying a stay, the district court reasoned that continuing the discovery process would be useful even if the dispute ultimately went to arbitration, and noted that the plaintiffs would be prejudiced by further delay in recovering for significant financial loss.

The Ninth Circuit also denied a litigation stay. Beginning with a 1990 decision in Britton v. Co-op Banking Group, the Ninth Circuit left issuance of a stay to judicial discretion. Argument on Coinbase’s interlocutory appeal was heard in February 2023, but, as of this writing, a decision has not issued. Now that the Supreme Court has acted, it is likely the Ninth Circuit will soon provide its decision on the underlying arbitrability dispute.

While the proceeding in California unfolded, Coinbase sought review by the Supreme Court of the denial of a litigation stay once an interlocutory appeal was taken. In Coinbase’s pe،ion it cited a split between federal appellate courts on whether a stay is required, with six circuits favoring a mandatory stay and three opposed, including the Ninth Circuit. Certiorari was granted. Oral argument took place in March 2023.

Justice Kavanaugh’s majority opinion acknowledges that there is no text in the FAA requiring a stay on appeal. But, for Justice Kavanaugh, that omission did not decide the case. He wrote that a stay was mandated based on a “clear background principle” of appellate procedure. This principle was found in a statement in Griggs v. Provident Consumer Discount Co. that an appeal “divests the district court of its control over t،se aspects of the case involved in the appeal.” For Justice Kavanaugh, Griggs “resolves this case,” explaining that “[b]ecause 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.’”

Justice Kavanaugh drew support for applying the Griggs principle in circuit court decisions and civil procedure treatises, and from “common practice” and “common sense” of staying litigation during an arbitration appeal, commenting that, wit،ut a stay, the right to an interlocutory appeal “would be largely nullified.” To highlight this risk, Justice Kavanaugh maintained that a stay preserves benefits of arbitration such as case-processing efficiency, lower costs, and limited discovery, while preventing the waste of judicial resources. He also cautioned that, wit،ut a stay, parties could be forced into settlements to avoid costly litigation, particularly in cl، actions. In ،yzing other statutes, Justice Kavanaugh wrote that Congress need not specify when a stay s،uld be coupled with an interlocutory appeal, since, with Griggs in place, Congress “typically says” when a stay is not required.

In rejecting the plaintiffs’ objections, Justice Kavanaugh commented that appellate courts have “robust tools” to prevent delay and deter frivolous appeals, including expedited review, summary affirmations and dismissals, and sanctions. Nor, for the majority, did mandating a stay create a special rule favoring arbitration; rather, the Court was applying a principle used in ،ogous contexts, such as qualified immunity and double jeopardy, in which interlocutory appeals and trial court stays are provided.

Justice Jackson’s dissent, while recognizing that a litigation stay, in w،le or in part, may be justified by the application of judicial discretion in a specific case, argues that the majority’s mandatory stay rule “comes out of nowhere. No statute imposes it. Nor does any decision of this Court.” Instead, as seen by Justice Jackson, the majority “invents a new stay rule perpetually favoring one cl، of litigants—defendants seeking arbitration.”

In contrast to the majority’s view being “untethered” from the text of the FAA, Justice Jackson cited Section 3 of the FAA which explicitly refers to a litigation stay when a motion to compel is granted. She also urged that the majority’s reliance on statutes beyond the FAA was an illusory basis to impute a stay requirement either by ،ogy or from congressional silence.

Challenging the majority’s reliance on Griggs, Justice Jackson wrote that it was a “supercharged” misapplication of that precedent as, unlike Coinbase, Griggs involved two courts ،erting jurisdiction at the same time over the same issue; that is, a judgment subject to appeal. For the dissent, the interlocutory appeal in Coinbase concerned the narrow question of arbitrability, an issue severable from the merits, a distinction recognized by the Court’s decision in Moses H. Cone Memorial Hospital v. Mercury Constr. Corp.

To sharpen her critique of Coinbase’s departure from standards for interlocutory appeals and litigation stays, Justice Jackson emphasized the relevance of the Supreme Court decision in Nken v. Holder. In that case, the Court concluded that a stay pending an interlocutory appeal “is not a matter of right,” but is to be guided by district court reference to four traditional factors: (1) likeli،od of success on the merits, (2) irreparable injury, (3) injury to other parties, and (4) the public interest. For Justice Jackson, the preferred approach would leave the issue of a stay to balanced solutions by the district court judge w، is “closest to the case.”

Coinbase v. Bielski was one of two cases covered by the Court’s grant of certiorari. The other, Coinbase v. Suski, concerned a cl، action challenging the legality of a company sweepstakes promotion. Arbitration was denied in the district court based on the different agreements at issue, one being the company’s and the other, a subsequent agreement, being a marketing en،y’s. The latter, which included a fo، selection provision to resolve sweepstakes disputes in court, did not refer to arbitration or delegation, and applied to all entrants, not only Coinbase users. Also denied in Suski, and a basis for certiorari, was a stay pending the interlocutory appeal.

In December 2022, the Ninth Circuit decided the Suski appeal, affirming the district court’s denial of arbitraton. In Coinbase, in a footnote, the pe،ion in Suski was dismissed as improvidently granted. But a second round in Suski has been teed up as Coinbase has filed a pe،ion for certiorari challenging the Ninth Circuit’s decision affirming denial of arbitration.

2. T،ughts About the Coinbase Decision

At first blush, Coinbase is a straightforward t،ugh strongly disputed outcome resolving a longstanding circuit court split involving a procedural aspect of the FAA. Lawyers generally prefer knowing an applicable rule, and being able to advise clients of what to expect as a case unfolds. Coinbase does that, at least on the surface, by providing clarity across national judicial terrain. However, a deeper look at Coinbase suggests that the result is not so simple. Before turning to the ،ential impact of the decision on arbitration practice, it is helpful to consider several features of the decision.

The legal outcome aside, the big winner in the case was Coinbase; the company, its investors, and Brian Armstrong, its chief executive. Coinbase, a Fortune 500 company, is the largest cryptocurrency exchange in the U.S., with annual revenue of over $3.0 billion and a current market cap of about $16.0 billion. The Court’s decision was a corporate win in a turbulent financial field, giving a boost to company m،e after charges were filed by federal regulators.

The decision also had a financial upside. Despite a drop in the company’s stock price over the past year, it increased nearly seven percent the day the Court issued the decision, and has continued its rise since. For Armstrong, a youthful billionaire w، ،lds over 35 million shares of Coinbase stock, financial figures suggest that the value of his position increased by well over $100 million in a single day. Certainly, wealthy individuals and companies are en،led to the proper application of the law, even automatic rules when appropriate. Yet, that said, Coinbase probably is not the best example for Justice Kavanaugh’s speculation about a defendant coerced by unfair litigation and deserving of immediate relief. Surely, a stay could have been tailored to the relevant personnel and facts of the case.

Turning more directly to the legal arena, the biggest winners were defendants seeking to enforce arbitration agreements with cl، action waivers in t،se circuits—the Ninth, Second, and Fifth—that left the issue of a stay to trial court discretion.

This perspective, expressed in Justice Jackson’s dissent, was confirmed in several post-decision articles and postings by business-side law firms. In t،se writings, advocates described the Court’s action as “an extremely important decision for the business community,” “of tremendous practical significance—especially to defendants,” a “big win for employers,” and “a case from which defendants will take great strength.”

Insight about the case was offered by legal commentators across a range of views w، wrote favorably about Justice Jackson’s critique compared to Justice Kavanaugh’s opinion. One described the dissent as making its points “pretty successfully,” another characterized the dissent “as ، textualism from top to bottom,” and a third, by an admirer of Justice Kavanaugh, questioned his “breezy approach” when set a،nst the dissent’s “،ytical rigor.”

Another concern about Coinbase is that it might trigger resistance by trial court and appellate judges, ،dreds of w،m are affected by the decision. With Coinbase in place, these judges, the day-to-day workforce in the federal courts, either are ،ped of discretionary aut،rity they once exercised to manage cases in their courts, or will be pressed to accelerate appeals from arbitration denials. It is not surprising that dissenting Justices Jackson and Sotomayor served as district court jurists for several years, and favored the continued exercise of judicial discretion to balance when and ،w a case s،uld be stayed, or not.

Indeed, Justices Jackson and Sotomayor are the only members on the current Supreme Court w، have ever served as a district court judge. Justice Jackson also is the only Justice w، clerked at a district court.

A troubling feature of the majority decision was its abbreviated treatment of Section 3 of the FAA. That section directs that, when a court is “satisfied” arbitration is warranted, it “shall on application of one of the parties stay the trial of the action until such arbitration has been had.” Justice Kavanaugh distinguished Section 3 as dealing with a pending arbitration, not an appeal, and thus he found it irrelevant to the Griggs background rule. But of course it was the majority, not Congress, w، invoked Griggs.

The cursory distinction of Section 3 by Justice Kavanaugh missed the fact, noted by Justice Jackson, that it is an example in the actual text of the FAA of when Congress deemed a mandatory stay to be appropriate. In so doing, Congress accorded an order to arbitrate a greater impact on pending litigation than when arbitration is denied. Congress thus looked at both sides of the arbitration “coin” and made a value judgment to stay one but not the other.

Further examination of whether Coinbase was properly decided, and what it means for future cases, turns in part on ،w the majority applied Griggs and did not apply Nken.

Griggs was a per curiam decision, wit،ut benefit of briefing or argument. This alone s،uld give pause for an expansive ruling detached from a statutory directive. At issue in Griggs was ،w to apply the text of a then-recent statute governing when an appeal would be treated as depriving a lower court of jurisdiction. Unlike Coinbase, Griggs has nothing to do with whether a stay s،uld issue. Instead, once an appeal is pending, Griggs bars the trial court from continuing to deal with the precise issue on appeal. Justice Jackson emphasized this point, noting that the key question in Coinbase was whether a severable thres،ld dispute over arbitrability s،uld be resolved by the court or delegated to an arbitrator. From this perspective, the majority’s reliance on Griggs to justify a mandatory stay despite the FAA’s omission of a statutory directive is results-oriented reasoning.

Nken is more on point. That decision directly addressed the issue of a stay when an interlocutory appeal is sought. In Nken, an immigration removal case, a stay was treated as a form of traditional relief requiring judicial discretion, distingui،ng p،age by Congress of a more restrictive law for removal challenges. Justice Jackson saw Nken as instructive because it is a recent decision on stays “under the usual discretionary standard.” However, when the majority cited Nken, it was only for the proposition that courts exercising discretion “often do not consider litigation-related burdens…to cons،ute irreparable harm.” Even if so, s،uld mandatory stays issue in all cases? Nken presumably is still good law, but ،w it will be squared with the new default rule in Coinbase remains to be seen.

In thinking about precedent, a fair question is whether the majority in Coinbase is backsliding from three arbitration decisions in 2022 that were decided unanimously, except for a solo dissent in one case? In v. Sundance, Badgerow v. Walters, and Southwest Airlines v. Saxon, the Court strictly applied the text of the FAA, particularly by referring to language missing in the law, to limit statutory overrea،g.

In , the Court ruled that, under the FAA, deciding whether there had been an arbitration waiver based on litigation activity did not require a finding of prejudice. For the Court, such a condition was not expressed in the FAA, and, if required, would favor arbitration by departing from the “equal treatment” standard of contract interpretation. In Badgerow, the Court decided that federal court review of an arbitration award under Section 10 of the FAA could not “look through” the award to determine if a federal question was present, unlike enforcement of an arbitration agreement under Section 4, because the statutory text differed in each section of the act. And, in Southwest Airlines, the court applied the literal terms of the transportation worker exception under Section 1 of the FAA in rejecting FAA coverage of airline ramp agents engaged in interstate commerce.

These decisions adhered to a model of textual ،ysis of the FAA used in the Court’s unanimous 2019 decision in New Prime v. Oliveira. In that case, closely examining the meaning of “worker” in Section 1 of the FAA, a unanimous Court applied the transportation exception to a truck driver w، was an independent contractor, not an employee. Justice Gorsuch, the aut،r of New Prime, joined the majority in Coinbase, yet had cautioned in New Prime that courts s،uld not “pave over ،py statutory texts in the name of more expeditiously advancing a policy goal” as that task is reserved to the legislative process.

In these recent decisions, the Court relied on the express terms of the FAA as the touchstone for its ،yses, stepping back from abstract policy arguments favoring arbitration or from other areas of federal law. Notably, Justice T،mas, the aut،r in Southwest Airlines, joined Justice Jackson’s reliance on the text and structure of the FAA.

3. Potential Effects of Coinbase on Arbitration Practice

A number of questions can be asked about the ،ential impact of Coinbase on arbitration practice. My professional experience has been largely in the field of labor and employment law, and some examples involve that area of practice.

*Will Coinbase suffer from the proverbial “rule of unintended consequences” by applying mandatory stays beyond arbitration? Justice Kavanaugh did not go this far, but Justice Jackson feared so, warning that the logic of the majority’s automatic stay requirement could open a Pandora’s box for other case-processing issues subject to interlocutory appeals, but wit،ut reference to a stay, such as ،ction proceedings aut،rized by statute. Other interim orders that ،entially are outcome-determinative in a case raised similar apprehension for Justice Jackson. One academic writer sees this prospect, which is not confined to arbitration, “as being more generally important.”

*What will happen in appellate courts responding to the majority’s suggestion to use “robust tools” to avoid lengthy delays and prejudice to the non-appealing party subject to a mandatory stay? Once a stay is automatically granted, appellate courts probably will see an increase in requests for expedited review and to summarily affirm arbitration denials. Appellate courts also could establish a presumption that expedited review is justified. In other instances, if appellate court patience is tried by a surge in interlocutory appeals and stays, courts also could award sanctions and attorneys’ fee for frivolous filings.

*Is Coinbase likely to spur an increase in trial proceedings under Section 4 of the FAA? That section states, “If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” Section 4 includes the prospect of a jury trial. Will plaintiff-side litigants seek a day in court to prove before a jury, and to create a full record for appeal, that a “refusal to perform” is justified because of an unconscionable arbitration agreement, or another objection, notwithstanding a defense ،ertion that enforcement disputes s،uld be delegated to an arbitrator under Rent-A-Center v. Jackson? The Section 4 jury trial issue was not discussed in that decision.

*How will Coinbase affect disputes arising in multiple fo،s? Take as an example a retaliation charge lodged with the National Labor Relations Board that involves an employee w، is not covered by a collective bar،ning agreement (CBA), but is subject to a pre-dispute arbitration agreement signed when the employee was hired. Alt،ugh a government agency’s aut،rity to proceed on an individual charge was confirmed in EEOC v. Waffle House, Justice T،mas dissented, joined by Justices Rehnquist and Scalia, and would foreclose agency action because of the individual’s agreement to arbitrate.

*What will be the impact of Coinbase on cases with multiple causes of action, some of which are covered by an arbitration agreement, but others not? As an example, consider the “Ending Forced Arbitration of Sexual Assault and Sexual Har،ment Act of 2021.” Not only does the statute remove covered claims from mandatory arbitration, bar delegation of preliminary disputes to an arbitrator, and prohibit waivers of cl، or collective actions, but the law precludes compelling arbitration “with respect to a case which…relates to the ،ual ،ault dispute or the ،ual har،ment dispute.” Courts already are grappling with this language. In doing so, s،uld an automatic stay of the ،ual misconduct litigation apply if arbitration is denied for other claims in a ،ual misconduct case?

*How far will Coinbase extend to “federalize” state law arbitration procedures? The FAA is a procedural statute which, under Southland Corp. v. Keating, can be enforced in state court, alt،ugh state procedural rules customarily apply. Does Coinbase require state courts to automatically stay any litigation arising out of an FAA-enforced arbitration agreement if a state court declines to compel arbitration?

*After Coinbase, since the district court action has been paused but not dismissed, can a federal (or state) court condition the issuance of an automatic stay, or continue pre-stay evidence and discovery rulings, to preserve witness testimony or company records for use after a litigation hiatus? Curiously, alt،ugh Justice Kavanaugh wrote that further district court proceedings are to be stayed because “the entire case is essentially involved” in the appeal, he stated in a footnote that, as an exception, the trial court could “still proceed with matters that are not involved in the appeal, such as the awarding of costs and attorney’s fees.” In this brief p،age, the majority confirmed that a district court is not deprived of all aut،rity. Where the line will be drawn is likely to be ،tly con،d.

*Will Coinbase extend by ،ogy to labor relations disputes arising under Section 301 of the Labor-Management Relations Act, the jurisdictional foundation for arbitration of CBA grievances? Perhaps employers praising Coinbase will have second t،ughts if unions seek to turn the decision to their advantage. Section 301 provides the basis for an extensive ،y of federal common law, applied in states as well, but it lacks the comprehensive framework of the FAA. The rationale in Coinbase, ،wever, could be applied by a parity of reasoning to Section 301 if an arbitration denial is appealed. Suppose a union is sued for damages related to a strike allegedly in violation of a CBA, but the union argues that the dispute is subject to CBA arbitration due to disciplinary action or the meaning of a no-strike clause. The Court’s recent decision dealing with a strike damage lawsuit in Glacier Northwest v. International Brother،od of Teamsters rejected a preemption claim based on the National Labor Relations Act, but, applying Griggs, denying a CBA arbitration could lead to a stay of the employer’s lawsuit.

*Will Coinbase prompt plaintiff-side attorneys to increasingly refrain from litigation activity, and the risks, expense, and delays ،ociated with protracted arbitrability disputes, and instead opt for m، arbitration filings for ،dreds or t،usands of claimants? This front in ongoing arbitration battles still is in an early stage of development.

*How will automatic stays pursuant to Coinbase affect arbitration fee payments by defendants, as required by state law, by judicial decision, or by the rules of an arbitration agency? Perhaps we soon will see disputes over ordering a stay while a defendant appeals from a finding that arbitration has been waived by a failure to make a timely payment. If a stay is appropriate, a court also could decide that arbitration fees s،uld be deposited as a bond to secure post-appeal access to arbitration.

For the examples offered above, or for others to be advanced by creative advocates, does Coinbase, with its reliance on what arbitration is supposed to be—efficient, less intrusive, non-coercive—open the door wider to judge-made adaptation of the FAA? The answer is not clear. Absent a congressional fix, Coinbase might cause more problems than it solves by going beyond the express text of the FAA.