Appeals from Trial Court Decisions Denying Arbitration Trigger Automatic Stay for the Moving Party
The general rule is that parties to a lawsuit may not appeal until the case is over at the trial court level. The trial court completes its work and, after a final judgment or order is entered, an appeal may be taken. There are exceptions, one of which is found in Section 16 of the Federal Arbitration Act (FAA). Section 16 permits interlocutory (i.e., immediate, before the case is over) appeals from orders denying motions to compel arbitration (but not from orders granting such motions). The question the U.S. Supreme Court addressed in Coinbase, Inc. v. Bielski, Case No. 22-105 (June 23, 2023) was whether an appeal from an order denying a motion to compel arbitration triggered an automatic stay of further proceedings until the appeal is completed. The Supreme Court held the answer was, “Yes.”
The Supreme Court's decision observed that Section 16 did not say whether an appeal triggered an automatic stay. Nevertheless, the Court reasoned that, generally, appeals prevented lower from taking further action. The Court further reasoned that its conclusion was buttressed by “common sense.” If a trial court mistakenly denied a motion to compel arbitration but the case was not stayed pending appeal, the lawsuit would continue while the moving party irretrievable lost the benefits of arbitration, e.g., efficiency, economy, and less intrusive discovery. The Court also noted that many of the appellate courts that had considered the issue, and most legal commentators, agreed with its conclusion.
Factually, Coinbase was a putative class action against an online currency platform by users alleging it failed to replace funds fraudulently taken from their accounts. Coinbase’s user agreement included an arbitration clause, and Coinbase moved to compel arbitration. The trial court denied Coinbase’s motion to compel discovery. Coinbase appealed pursuant to Section 16 of the FAA. In the meantime, the trial court denied Coinbase’s motion for a stay pending appeal and the appellate court agreed. Coinbase then appealed to the Supreme Court; which, as discussed, reversed the lower courts decisions denying Coinbase’s motion for a stay.
Coinbase was a 5-4 decision. The majority's opinion, authored by Justice Kavanagh, held for Coinbase. The minority's opinion, authored by Justice Jackson and in which Justice Thomas concurred in part, focused on the automatic stay’s harm to plaintiffs. Specifically, the automatic stay forces plaintiffs to wait while until an appeal is completed, even in cases where the motion to compel arbitration was correctly denied by the trial court.