CASE PREVIEW

Justices to consider whether litigation should move forward in trial court while appellate courts review obligation to arbitrate

Tuesday’s argument in Coinbase v. Bielski brings the justices yet another arbitration dispute. To make matters more repetitive – it is another case in which the U.S. Court of Appeals for the 9th Circuit has handed down a decision that seems to suggest a general hostility towards arbitration as a tool for resolving disputes between businesses and their customers. Even before the strengthening of the Supreme Court’s conservative majority, those arbitration cases almost always went against the 9th Circuit – suggesting that Coinbase, a cryptocurrency exchange and the petitioning business in this case, will have the advantage next week.

The particular question before the court involves the procedures for deciding whether a dispute should be resolved by a court or an arbitrator. Ordinarily in these cases, the customer files a lawsuit (often, as here, a class action), and the business immediately files a motion asking the court to stay litigation and refer the matter to arbitration. The case before the justices arises from two separate disputes with Coinbase. In both cases, federal district courts in California denied a motion to compel arbitration, with one judge finding the arbitration agreement unconscionable and the other holding that the agreement did not apply to the dispute.

When a district judge declines to compel arbitration, the Federal Arbitration Act gives the party seeking arbitration (here, Coinbase) the right to an immediate (“interlocutory”) appeal. Coinbase appealed both those rulings to the 9th Circuit, but that court declined to halt proceedings in the trial court while it considered whether Coinbase could force the customers to arbitrate. The 9th Circuit’s review of those proceedings is still in process, more than a year later, while class-action proceedings have been moving forward in the district courts in both cases.

In the Supreme Court, Coinbase argues that the right to challenge the ruling against arbitration immediately should bring with it a stay of the conventional litigation proceedings. Its argument is simple and linear. First, it points to a 1982 Supreme Court case, Griggs v Provident Consumer Discount Co., in which the justices explained that an appeal “divests” a federal trial court of control  “over those aspects of the case involved in the appeal.” Because the appeal here – on the question of arbitrability – considers whether there should be litigation in the district court at all, Coinbase insists that the “aspects of the case involved in the appeal” quite clearly include the ongoing process of litigation in the district court.

Coinbase also points to the structure of Section 16(a) of the Federal Arbitration Act, which allows immediate appeals from orders refusing arbitration, but does not allow similar appeals from orders requiring arbitration. Coinbase argues that it would directly undermine Congress’s preference for arbitration – with the unbalanced right to immediate appeal only of rulings against arbitration – if the same trial courts that rule against arbitration are free to plow forward with intense litigation while an appeal languishes, perhaps for years, in the court of appeals.

The customers, Abraham Bielski and David Suski, counter that Congress’s failure to require an automatic stay in Section 16(a) means that the court should not imply one. They point to various provisions in federal statutes – including one in the Federal Arbitration Act – that do require trial-court proceedings to pause while an appeal is in play. They also argue that because the merits of a case is entirely separate from the arbitrability of a case, there is no reason for the district court to stop litigation from moving forward while the appeals court considers the question of arbitrability. For the customers, the key point under Griggs is that there is no risk of inconsistent decisions by the trial and appellate courts: The decision by the appeals court will determine the validity of the litigation process in the trial court.

It would be remarkable if the conservative justices that favor broad enforcement of the Federal Arbitration Act do not regard this as an easy case. For them, it will seem self-evident that forcing Coinbase to litigate in the district court deprives it of the benefit of the arbitration agreement for which it bargained, and equally plain that Congress sought the opposite result in crafting the bifurcated rule for interlocutory appeals in Section 16. The real question for argument, I expect, is whether this looks like a unanimous reversal of the 9th Circuit or whether the justices less supportive of arbitration will find an argument to support the decision below. With the customers conceding that the Griggs standard applies, it well might be impossible to convince any of the justices that proceeding to litigation is not “involved in” Coinbase’s appeal on the question of arbitrability. We’ll learn a lot more on Tuesday.